History
The first bank to be established in Australia was the Bank of New South Wales, which was established in Sydney 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.
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.
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 banks, 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 institutions 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".
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.
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 banks).
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.
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.
Read more about this topic: Banking In Australia
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