Banks of Australia
Encyclopedia
The bank sector in Australia consists of a number of banks licensed to carry on banking business under the Banking Act 1959, foreign banks licensed to operate through a branch in Australia, and Australian-incorporated foreign bank subsidiaries. The banking system is liquid, competitive and well developed.
in 1817, with Edward Smith Hall
as its cashier and secretary. During the 19th and early 20th century, the Bank opened branches throughout Australia and Oceania: at Moreton Bay
(Brisbane
) in 1850, then in Victoria
(1851), New Zealand (1861), South Australia
(1877), Western Australia
(1883), Fiji
(1901), Papua New Guinea
(1910) and Tasmania
(1910).
The ANZ Bank began as a London-based bank, called The Bank of Australasia in 1835. In 1951, it merged with the Union Bank of Australia, another London-based bank, which had been formed in 1837. In 1970, it merged with the English, Scottish and Australian Bank Limited, another London-based bank, formed in 1852, in what was then the largest merger in Australian banking history, to form the Australia and New Zealand Banking Group Limited.
Historically, banking in Australia was tightly regulated. Until as recently as the 1980s, it was virtually impossible for a foreign bank to establish branches in Australia; consequently Australia had very few banks when compared with such places as the United States
or Hong Kong
. Moreover, banks in Australia were divided into two distinct categories, known as saving banks and trading banks. Saving banks paid virtually no interest to their depositors and their lending activities were restricted to providing mortgages
. Many of these savings banks were owned by state governments. Trading banks were essentially merchant bank
s, which did not provide services to the general public. Because of these and numerous other regulatory restrictions on banks, other forms of non-bank financial institution
s flourished in Australia, such as the building society
and the credit union
. These were subjected to less stringent regulations, could provide and charge higher interest rates, but were restricted in the range of services they could offer. Above all, they were not allowed to call themselves "banks".
As with many other countries, the great depression
brought a string of bank failures. Two of the state-owned savings banks (of NSW
and WA
) would be bought out by the then federal owned Commonwealth Bank.
In 1961, central bank duties were transferred from the Commonwealth Bank to the newly created Reserve Bank of Australia, and the banking industry was slowly deregulated over the next two decades. The distinction between trading and savings banks was removed and banks were allowed to operate in the money market
(traditionally the domain of merchant bank
s).
The boom and bust of the 1980s was another turbulent time for banks, with some establishing leading market positions, and others being absorbed by the larger banks. The 1990s saw the privatisation of the Commonwealth Bank, and increased competition from non-bank lenders, such as providers of securitised
home loans.
Originally the role of central bank
was performed by the Commonwealth Bank of Australia, then a government-owned but essentially commercially-operated banking organization. This arrangement caused some discomfort for the other banks, and as a result the central bank function was transferred to the newly-created Reserve Bank of Australia
on 14 January 1960.
At the time, consumer credit in Australia was primarily loaned in the form of installment sales credit
. The arrival of hundreds of thousands of readily employable migrant workers under the post-war immigration scheme, coupled with intense competition amongst lenders, discouraged proper investigation into buyers. Concerns about the possibly inflationary impact of lending created the first finance companies in Australia.
No changes were made in parliament to address misallocated capital, even as most Australians were seeing their real incomes declining.
and Westpac Banking Corporation
.
The Australian government has a "four pillars
" policy that prevents mergers between the four major banks. This is long-standing policy rather than formal regulation, but it reflects the broad political unpopularity of bank mergers. A number of leading commentators have argued that the "four pillars" policy is built upon economic fallacies and works against the nation's better interests. Recently, Australia's "big four" banks are in fact in the world's top 12 banks, due to recent collapses of large banking corporations.
The top four banking groups in Australia
ranked by market capitalisation at share close price 5 July 2011:
(now known as Suncorp), Bank of Queensland
and ME Bank. The number of building societies in Australia is dwindling as is the number of credit unions. APRA put the number of building societies at June 2011 at 10 and the number of credit unions at 103. A number of credit unions are adopting the term bank in order to overcome adverse perceptions of smaller deposit-taking entities. For instance, the teachers credit unions in Queensland and New South Wales took this step in the second half of 2011.
Foreign banks which do not wish to obtain a banking authority in Australia may operate a representative office
in Australia for liaison purposes, but the activities of that office will be restricted.
According to the Foreign Investment Review Board, foreign investment in the Australian banking sector needs to be consistent with the Banking Act, the Financial Sector (Shareholdings) Act 1998 and banking policy, including prudential requirements. Any proposed foreign takeover or acquisition of an Australian bank will be considered on a case-by-case basis and judged on its merits.
There are a number of foreign subsidiary banks, however only a few have a retail banking presence; HSBC Bank Australia, Bank of Cyprus Australia Limited, Beirut Hellenic Bank and Citibank Australia
have a small number of branches.
Foreign banks have a more significant presence in the Australian merchant banking sector.
(APRA) and Australian Securities and Investment Commission (ASIC).
APRA is responsible for the licensing and prudential supervision of ADIs (banks, building societies, credit unions, friendly societies and participants in certain credit card schemes and certain purchaser payment facilities), life and general insurance companies and superannuation funds. APRA has issued capital adequacy guidelines for banks which are consistent with the Basel II
guidelines. All financial institutions regulated regulated by APRA are required to report on a periodic basis to APRA. Certain financial intermediaries, such as investment banks (which do not otherwise operate as ADIs) are neither licensed nor regulated under the Banking Act and are not subject to the prudential supervision of APRA. They may be required to obtain licences under the Corporations Act 2001 or other Commonwealth or State legislation, depending on the nature of their business activities in Australia.
ASIC has responsibility for market integrity and consumer protection
and the regulation of certain financial institutions (including investment banks and finance companies).
Banks are also subject to obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2008 as "reporting entities". They are required to identify and monitor customers using a risk-based approach, develop and maintain a compliance program, report suspicious matters and certain cash transactions and file annual compliance reports. The Australian Transaction Reports and Analysis Centre
(AUSTRAC) has primary regulation and oversight responsibility for AML and CTF under the 2008 act.
History
The first bank to be established in Australia was the Bank of New South Wales, which was established in SydneySydney
Sydney is the most populous city in Australia and the state capital of New South Wales. Sydney is located on Australia's south-east coast of the Tasman Sea. As of June 2010, the greater metropolitan area had an approximate population of 4.6 million people...
in 1817, with Edward Smith Hall
Edward Smith Hall
Edward Smith Hall was a political reformer, newspaper editor and banker in Australia.Hall was born in London, one of six sons of Smith Hall, bank manager, and his wife, Jane née Drewry...
as its cashier and secretary. During the 19th and early 20th century, the Bank opened branches throughout Australia and Oceania: at Moreton Bay
Moreton Bay
Moreton Bay is a bay on the eastern coast of Australia 45 km from Brisbane, Queensland. It is one of Queensland's most important coastal resources...
(Brisbane
Brisbane
Brisbane is the capital and most populous city in the Australian state of Queensland and the third most populous city in Australia. Brisbane's metropolitan area has a population of over 2 million, and the South East Queensland urban conurbation, centred around Brisbane, encompasses a population of...
) in 1850, then in Victoria
Victoria (Australia)
Victoria is the second most populous state in Australia. Geographically the smallest mainland state, Victoria is bordered by New South Wales, South Australia, and Tasmania on Boundary Islet to the north, west and south respectively....
(1851), New Zealand (1861), South Australia
South Australia
South Australia is a state of Australia in the southern central part of the country. It covers some of the most arid parts of the continent; with a total land area of , it is the fourth largest of Australia's six states and two territories.South Australia shares borders with all of the mainland...
(1877), Western Australia
Western Australia
Western Australia is a state of Australia, occupying the entire western third of the Australian continent. It is bounded by the Indian Ocean to the north and west, the Great Australian Bight and Indian Ocean to the south, the Northern Territory to the north-east and South Australia to the south-east...
(1883), Fiji
Fiji
Fiji , officially the Republic of Fiji , is an island nation in Melanesia in the South Pacific Ocean about northeast of New Zealand's North Island...
(1901), Papua New Guinea
Papua New Guinea
Papua New Guinea , officially the Independent State of Papua New Guinea, is a country in Oceania, occupying the eastern half of the island of New Guinea and numerous offshore islands...
(1910) and Tasmania
Tasmania
Tasmania is an Australian island and state. It is south of the continent, separated by Bass Strait. The state includes the island of Tasmania—the 26th largest island in the world—and the surrounding islands. The state has a population of 507,626 , of whom almost half reside in the greater Hobart...
(1910).
The ANZ Bank began as a London-based bank, called The Bank of Australasia in 1835. In 1951, it merged with the Union Bank of Australia, another London-based bank, which had been formed in 1837. In 1970, it merged with the English, Scottish and Australian Bank Limited, another London-based bank, formed in 1852, in what was then the largest merger in Australian banking history, to form the Australia and New Zealand Banking Group Limited.
Historically, banking in Australia was tightly regulated. Until as recently as the 1980s, it was virtually impossible for a foreign bank to establish branches in Australia; consequently Australia had very few banks when compared with such places as the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
or Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
. Moreover, banks in Australia were divided into two distinct categories, known as saving banks and trading banks. Saving banks paid virtually no interest to their depositors and their lending activities were restricted to providing mortgages
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
. Many of these savings banks were owned by state governments. Trading banks were essentially merchant bank
Merchant bank
A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to....
s, which did not provide services to the general public. Because of these and numerous other regulatory restrictions on banks, other forms of non-bank financial institution
Non-bank financial institution
A non-bank financial institution is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFIs facilitate bank-related financial services, such as investment, risk pooling, contractual savings, and market...
s flourished in Australia, such as the building society
Building society
A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially mortgage lending. These institutions are found in the United Kingdom and several other countries.The term "building society"...
and the credit union
Credit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...
. These were subjected to less stringent regulations, could provide and charge higher interest rates, but were restricted in the range of services they could offer. Above all, they were not allowed to call themselves "banks".
As with many other countries, the great depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
brought a string of bank failures. Two of the state-owned savings banks (of NSW
New South Wales
New South Wales is a state of :Australia, located in the east of the country. It is bordered by Queensland, Victoria and South Australia to the north, south and west respectively. To the east, the state is bordered by the Tasman Sea, which forms part of the Pacific Ocean. New South Wales...
and WA
Western Australia
Western Australia is a state of Australia, occupying the entire western third of the Australian continent. It is bounded by the Indian Ocean to the north and west, the Great Australian Bight and Indian Ocean to the south, the Northern Territory to the north-east and South Australia to the south-east...
) would be bought out by the then federal owned Commonwealth Bank.
In 1961, central bank duties were transferred from the Commonwealth Bank to the newly created Reserve Bank of Australia, and the banking industry was slowly deregulated over the next two decades. The distinction between trading and savings banks was removed and banks were allowed to operate in the money market
Money market
The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit,...
(traditionally the domain of merchant bank
Merchant bank
A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to....
s).
The boom and bust of the 1980s was another turbulent time for banks, with some establishing leading market positions, and others being absorbed by the larger banks. The 1990s saw the privatisation of the Commonwealth Bank, and increased competition from non-bank lenders, such as providers of securitised
Securitization
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...
home loans.
Originally the role of central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
was performed by the Commonwealth Bank of Australia, then a government-owned but essentially commercially-operated banking organization. This arrangement caused some discomfort for the other banks, and as a result the central bank function was transferred to the newly-created Reserve Bank of Australia
Reserve Bank of Australia
The Reserve Bank of Australia came into being on 14 January 1960 as Australia's central bank and banknote issuing authority, when the Reserve Bank Act 1959 removed the central banking functions from the Commonwealth Bank to it....
on 14 January 1960.
At the time, consumer credit in Australia was primarily loaned in the form of installment sales credit
Installment credit
Installment credit is a type of credit that has a fixed number of payments, in contrast to revolving credit.-Examples:* Land loan* Home construction loan* Home mortgage* Some equity loans* Home improvement loan* Automobile loan...
. The arrival of hundreds of thousands of readily employable migrant workers under the post-war immigration scheme, coupled with intense competition amongst lenders, discouraged proper investigation into buyers. Concerns about the possibly inflationary impact of lending created the first finance companies in Australia.
No changes were made in parliament to address misallocated capital, even as most Australians were seeing their real incomes declining.
Four pillars
Currently, the Australian banking sector is dominated by four major banks: Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia BankNational Australia Bank
National Australia Bank is one of the four largest financial institutions in Australia in terms of market capitalisation and customers. NAB is ranked 17th largest bank in the world measured by market capitalisation...
and Westpac Banking Corporation
Westpac
Westpac , is a multinational financial services, one of the Australian "big four" banks and the second-largest bank in New Zealand....
.
The Australian government has a "four pillars
Four pillars policy
The Four Pillars policy is a legislative policy of the Australian Government to maintain the separation of the four largest banks in Australia by disallowing their merger or acquisition by any of the other three banks....
" policy that prevents mergers between the four major banks. This is long-standing policy rather than formal regulation, but it reflects the broad political unpopularity of bank mergers. A number of leading commentators have argued that the "four pillars" policy is built upon economic fallacies and works against the nation's better interests. Recently, Australia's "big four" banks are in fact in the world's top 12 banks, due to recent collapses of large banking corporations.
The top four banking groups in Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
ranked by market capitalisation at share close price 5 July 2011:
| Rank | Company | Market capitalisation |
|---|---|---|
| 1 | Commonwealth Bank | A$79.86 billion |
| 2 | Westpac Banking Corporation | A$65.62 billion |
| 3 | Australia and New Zealand Banking Group | A$56.25 billion |
| 4 | National Australia Bank National Australia Bank National Australia Bank is one of the four largest financial institutions in Australia in terms of market capitalisation and customers. NAB is ranked 17th largest bank in the world measured by market capitalisation... |
A$54.54 billion |
Other retail banks
Competitors to the 'big four' banks include smaller and often regional banks, as well as building societies and mutual credit unions. Among regional banks are Bendigo and Adelaide Bank, Suncorp-MetwaySuncorp-Metway
Suncorp Group Limited is an Australian finance, insurance, and banking corporation based in Brisbane, Queensland, Australia. It is one of Australia's largest banks and its largest general insurance group, formed on 1 December 1996 by the merger of Suncorp, Metway Bank and the Queensland Industry...
(now known as Suncorp), Bank of Queensland
Bank of Queensland
Bank of Queensland , one of the oldest financial institutions in Queensland, Australia, is a retail bank with a network of almost 270 branches, including 152 in Queensland, 52 in New South Wales, 23 in Victoria and 34 in Western Australia. Following the Home Building Society and Pioneer mergers,...
and ME Bank. The number of building societies in Australia is dwindling as is the number of credit unions. APRA put the number of building societies at June 2011 at 10 and the number of credit unions at 103. A number of credit unions are adopting the term bank in order to overcome adverse perceptions of smaller deposit-taking entities. For instance, the teachers credit unions in Queensland and New South Wales took this step in the second half of 2011.
Foreign banks
Foreign banks wishing to carry on a banking business in Australia must obtain a banking authority issued by APRA under the Banking Act, either to operate as a wholesale bank through an Australian branch or to conduct business through an Australian-incorporated subsidiary.Foreign banks which do not wish to obtain a banking authority in Australia may operate a representative office
Representative office
A representative office is an office established by a company to conduct marketing and other non-transactional operations, generally in a foreign country where a branch office or subsidiary is not warranted. Representative offices are generally easier to establish than a branch or subsidiary, as...
in Australia for liaison purposes, but the activities of that office will be restricted.
According to the Foreign Investment Review Board, foreign investment in the Australian banking sector needs to be consistent with the Banking Act, the Financial Sector (Shareholdings) Act 1998 and banking policy, including prudential requirements. Any proposed foreign takeover or acquisition of an Australian bank will be considered on a case-by-case basis and judged on its merits.
There are a number of foreign subsidiary banks, however only a few have a retail banking presence; HSBC Bank Australia, Bank of Cyprus Australia Limited, Beirut Hellenic Bank and Citibank Australia
Citibank Australia
Citibank Australia was opened in 1985 and was one of the first foreign banks to be granted a banking license in Australia, besides being one of the largest international banks in the country. With its head office in Sydney, Citibank currently has major centers in Melbourne, Perth, Booragoon and...
have a small number of branches.
Foreign banks have a more significant presence in the Australian merchant banking sector.
Regulation
Australia's banking regulation is extensive and detailed. It is split mainly between the Australian Prudential Regulation AuthorityAustralian Prudential Regulation Authority
The Australian Prudential Regulation Authority is a statutory authority and the prudential regulator of the Australian financial services industry.-Regulatory scope:...
(APRA) and Australian Securities and Investment Commission (ASIC).
APRA is responsible for the licensing and prudential supervision of ADIs (banks, building societies, credit unions, friendly societies and participants in certain credit card schemes and certain purchaser payment facilities), life and general insurance companies and superannuation funds. APRA has issued capital adequacy guidelines for banks which are consistent with the Basel II
Basel II
Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision...
guidelines. All financial institutions regulated regulated by APRA are required to report on a periodic basis to APRA. Certain financial intermediaries, such as investment banks (which do not otherwise operate as ADIs) are neither licensed nor regulated under the Banking Act and are not subject to the prudential supervision of APRA. They may be required to obtain licences under the Corporations Act 2001 or other Commonwealth or State legislation, depending on the nature of their business activities in Australia.
ASIC has responsibility for market integrity and consumer protection
Consumer protection
Consumer protection laws designed to ensure fair trade competition and the free flow of truthful information in the marketplace. The laws are designed to prevent businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors and may provide additional...
and the regulation of certain financial institutions (including investment banks and finance companies).
Banks are also subject to obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2008 as "reporting entities". They are required to identify and monitor customers using a risk-based approach, develop and maintain a compliance program, report suspicious matters and certain cash transactions and file annual compliance reports. The Australian Transaction Reports and Analysis Centre
Australian Transaction Reports and Analysis Centre
Australian Transaction Reports and Analysis Centre is an Australian government agency, established in 1989 under the Financial Transaction Reports Act 1988 and continued in existence under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006...
(AUSTRAC) has primary regulation and oversight responsibility for AML and CTF under the 2008 act.
See also
- Financial system in AustraliaFinancial system in AustraliaThe Australian financial system has several sectors:* Banks, credit unions and building societies* Insurance * Superannuation* Financial markets—debt, equity and derivative markets...
- List of banks in Australia
- Timeline of banking in Western AustraliaTimeline of banking in Western AustraliaThe first commercial bank in Western Australia was created eight years after the establishment of the Swan River Colony in 1829.Note: bold entries indicate a locally domiciled operation...
- Economy of AustraliaEconomy of AustraliaThe economy of Australia is a developed, modern market economy with a GDP of approximately US$1.23 trillion. In 2011, it was the 13th largest national economy by nominal GDP and the 17th largest measured by PPP adjusted GDP, representing about 1.7% of the World economy. Australia was also ranked...
External links
- Australia's Banking History, ABC
- Current Bank fees & rates., Banks.net.au