The banking 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. For the past 10 years ended in mid-2013, Commonwealth Bank got the first rank of Bloomberg Riskless Return Ranking with returned a risk-adjusted 18 percent. Westpac Bank set in fourth with 11 percent and ANZ Bank set in seventh with 8.7 percent
Central Bank of Australia: Website www.rba.gov.au
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).
In 1835 a London-based bank called The Bank of Australasia was founded that would eventually become the ANZ Bank. 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.
A speculative boom in the Australian property market in 1880 led to the Australian banking crisis of 1893 in the colony. This was in an environment where little government control or regulation of banks had been established yet and led to 11 commercial banks failures.
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.
From the end of the Great Depression banking in Australia was tightly regulated. Until 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.
Currently, the Australian banking sector is dominated by four major banks: Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation.
In 1990, the Commonwealth Government of Australia announced that it adopted a "four pillars" policy and would reject any 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.
The top four banking groups in Australia ranked by market capitalisation at share close price 29 June 2012:
Rank / Company / Market capitalisation
1 Commonwealth Bank A$84.54 billion
2 Westpac Banking Corporation A$64.56 billion
3 Australia and New Zealand Banking Group A$59.03 billion
4 National Australia Bank A$52.73 billion
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 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.
Regulation of Banks in Australia
Australia's banking regulation is extensive and detailed. It is split mainly between the Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC).
APRA is responsible for the licensing and prudential supervision of Authorised Deposit-Taking Institution (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 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). However, ASIC does not actually investigate any issues or propose any regulations that concern consumer protection.
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.
List of Authorised Bank and Deposit-taking Institutions in Australia
The institutions listed on this page are regulated by APRA in accordance with the Banking Act 1959.
•AMP Bank Ltd
•Australia and New Zealand Banking Group Limited
•Bank of Queensland Limited
•Bendigo and Adelaide Bank Limited
•Commonwealth Bank of Australia
•Community CPS Australia Limited (trading as Beyond Bank Australia)
•Defence Bank Limited
•Heritage Bank Limited
•Macquarie Bank Limited
•mecu Limited (trading as bankmecu)
•Members Equity Bank Pty Limited
•National Australia Bank Limited
•Police Bank Ltd
•Police Financial Services Limited (trading as BankVic)
•Police & Nurses Limited (trading as P&N Bank)
•QT Mutual Bank Limited
•Rural Bank Limited (a subsidiary of Bendigo and Adelaide Bank Limited)
•Teachers Mutual Bank Limited
•Victoria Teachers Limited (trading as Victoria Teachers Mutual Bank)
•Westpac Banking Corporation
Foreign Subsidiary Banks
•Arab Bank Australia Limited
•Bank of China (Australia) Limited
•Bank of Sydney Ltd
•Citigroup Pty Limited
•HSBC Bank Australia Limited
•ING Direct (the trading name of ING Bank (Australia) Limited)
•Investec Bank (Australia) Limited
•Rabobank Australia Limited
Branches of Foreign Banks
•Banco Santander, S.A.
•Bank of America, National Association
•Bank of Baroda
•Bank of China Limited
•Bank of Communications Co., Ltd.
•Bank of Scotland plc
•Barclays Capital (the trading name of Barclays Bank PLC)
•BNP Paribas Securities Services
•China Construction Bank Corporation
•Credit Suisse AG
•Deutsche Bank Aktiengessellschaft
•First Commercial Bank
•Hua Nan Commercial Bank, Ltd
•Industrial and Commercial Bank of China Limited
•ING Bank N.V.
•JPMorgan Chase Bank, National Association
•Lloyds TSB Bank plc
•Mega International Commercial Bank Co., Ltd.
•Mizuho Corporate Bank, Ltd.
•Oversea-Chinese Banking Corporation Limited
•Rabobank Nederland (the trading name of Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.)
•Royal Bank of Canada
•Standard Chartered Bank
•State Bank of India
•State Street Bank and Trust Company
•Sumitomo Mitsui Banking Corporation
•Taiwan Business Bank
•Taiwan Cooperative Bank, Ltd
•The Bank of New York Mellon
•The Bank of Tokyo-Mitsubishi UFJ, Ltd
•The Hongkong and Shanghai Banking Corporation Limited
•The Northern Trust Company
•The Royal Bank of Scotland N.V.
•The Royal Bank of Scotland plc
•United Overseas Bank Limited
•B & E Ltd
•Big Sky Building Society Limited
•Greater Building Society Ltd
•Hume Building Society Ltd
•Maitland Mutual Building Society Limited
•Newcastle Permanent Building Society Limited
•The Rock Building Society Limited
•Wide Bay Australia Ltd
•Allied Members Credit Union Ltd
•Australian Central Credit Union Ltd (trading as People's Choice Credit Union)
•Australian Defence Credit Union Limited
•AWA Credit Union Limited
•Bananacoast Community Credit Union Ltd
•Bankstown City Credit Union Ltd
•Berrima District Credit Union Ltd
•CAPE Credit Union Limited
•Central Murray Credit Union Limited
•Central West Credit Union Limited
•Circle Credit Co-operative Limited
•Coastline Credit Union Limited
•Collie Miners Credit Union Ltd
•Community Alliance Credit Union Limited
•Community First Credit Union Limited
•Community Mutual Ltd
•Country First Credit Union Ltd
•Credit Union Australia Ltd
•Credit Union SA Ltd
•Dnister Ukrainian Credit Co-operative Limited
•ECU Australia Ltd
•Encompass Credit Union Limited
•Family First Credit Union Limited
•Fire Brigades Employees' Credit Union Limited
•Fire Service Credit Union Limited
•Firefighters & Affiliates Credit Co-operative Limited
•First Choice Credit Union Ltd
•First Option Credit Union Limited
•Ford Co-operative Credit Society Limited
•Gateway Credit Union Ltd
•Goldfields Money Limited
•Goulburn Murray Credit Union Co-operative Limited
•Heritage Isle Credit Union Limited
•Holiday Coast Credit Union Ltd
•Horizon Credit Union Ltd
•Hunter United Employees' Credit Union Limited
•Intech Credit Union Limited
•Laboratories Credit Union Limited
•Latvian Australian Credit Co-operative Society Limited
•Lithuanian Co-operative Credit Society "Talka" Limited
•Lysaght Credit Union Ltd
•MacArthur Credit Union Ltd
•Macquarie Credit Union Limited
•Manly Warringah Credit Union Limited
•Maritime, Mining & Power Credit Union Limited
•My Credit Union Limited
•MyState Financial Limited
•Newcom Colliery Employees Credit Union Ltd
•Northern Inland Credit Union Limited
•Nova Credit Union Limited
•Old Gold Credit Union Co-operative Limited
•Orange Credit Union Limited
•Police Credit Union Limited
•Pulse Credit Union Limited
•Qantas Staff Credit Union Limited
•Quay Credit Union Ltd
•Queensland Country Credit Union Limited
•Queensland Police Credit Union Limited
•Queensland Professional Credit Union Ltd
•Queenslanders Credit Union Limited
•Railways Credit Union Limited
•Select Credit Union Limited
•Service One Credit Union Limited
•SGE Credit Union Limited
•Shell Employees' Credit Union Limited
•South West Slopes Credit Union Ltd
•Southern Cross Credit Union Ltd
•South-West Credit Union Co-Operative Limited
•Summerland Credit Union Limited
•Sutherland Credit Union Ltd
•Swan Hill Credit Union Limited
•Sydney Credit Union Ltd
•Tartan Credit Union Ltd
•The Broken Hill Community Credit Union Ltd
•The Capricornian Ltd
•The Gympie Credit Union Ltd
•The University Credit Society Limited
•Traditional Credit Union Limited
•TransComm Credit Co-operative Limited
•Transport Mutual Credit Union Limited
•Warwick Credit Union Ltd
•WAW Credit Union Co-Operative Limited
•Woolworths Employees' Credit Union Limited
•Wyong Shire Credit Union Ltd
One ADI that provides general banking services which does not fall into the above categories:
•Cairns Penny Savings & Loans Limited
These companies provide services (e.g. payments clearing) to building societies and credit unions:
•Australian Settlements Limited
Specialist Credit Card Institutions (SCCIs)
•GE Capital Finance Australia
Locally Incorporated SCCIs
•Tyro Payments Limited
Providers of Purchased Payment Facilities
•PayPal Australia Pty Limited
Authorised Non-Operating Holding Companies
(authorised under subsection 11AA(2) of the Banking Act 1959)
•Macquarie Group Limited
The Reserve Bank of Australia, a state-owned bank, 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.
The bank has the responsibility of providing services to the Government of Australia in addition to also providing services to other central banks and official institutions. It currently consists of the Payments System Board, which governs the payments system policy of the bank, and the Reserve Bank Board, which governs all other monetary and banking policies of the bank.
Both boards consist of members of both the bank, the Treasury, other Australian government agencies, and leaders of other institutions that are part of the economy. The structure of the Reserve Bank Board has remained consistent ever since 1951, with the exception of the change in the number of members of the board. The governor of the Reserve Bank of Australia is appointed by the Treasurer and chairs both the Payment Systems and Reserve Bank Boards and when there are disagreements between both boards, the governor resolves them.
From the middle of the 19th century into the 1890s, the prospects of a national bank forming grew. In 1911, the Commonwealth Bank was established, but did not have the authority to print notes, which was a power that was still reserved to the Treasury. A movement toward reestablishing the gold standard occurred after World War I, with John Garvan leading various boards in contracting the money supply on the route to doing so, and the gold standard was instituted for both the British pound sterling and the Australian pound in 1925.
During the Great Depression, the Australian pound became devalued, no longer worth the pound sterling, and formally departed from the gold standard with the Commonwealth Bank Act of 1932. Legislation in 1945 led to regulation of private banks which H.C. Coombs was opposed to, and when he became Governor in 1949, he gave them more overall control over their institutions. When the monetary authorities implemented the advice of Coombs to have a flexible interest rate, it allowed the bank to rely more on open market operations.
The float of the Australian dollar happened in 1983, around the same period of time that the financial system in Australia was deregulated. Administration of the banks was transferred in 1998 from the bank to the Australian Prudential Regulation Authority and the Payments System Board was created, while the bank was given power within the said Board in the same year. The current Governor of the Reserve Bank is Glenn Stevens, who has been the incumbent since 18 September 2006
The Australian dollar (sign: $; code: AUD) is the currency of the Commonwealth of Australia, including Christmas Island, Cocos (Keeling) Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu. Within Australia it is almost always abbreviated with the dollar sign ($), with A$ sometimes used to distinguish it from other dollar-denominated currencies. It is subdivided into 100 cents.
As of 2011, the Australian dollar is the 5th most traded currency in the world, accounting for 7.6% of the world's daily share. It trades in the world foreign exchange markets behind the US dollar, the euro, the yen and the pound sterling. The Australian dollar is popular with currency traders, because of the comparatively high interest rates in Australia, the relative freedom of the foreign exchange market from government intervention, the general stability of Australia's economy and political system, and the prevailing view that the Australian dollar offers diversification benefits in a portfolio containing the major world currencies, especially because of its greater exposure to Asian economies and the commodities cycle. The currency is commonly referred to by foreign-exchange traders as the "Aussie".
Value of the Australian dollar
In 1966, when the Australian dollar was introduced, the international currency relationships were maintained under the Bretton Woods system, a fixed exchange rate system using a U.S. dollar standard. The Australian dollar, however, was effectively pegged to the British pound at an equivalent value of approximately 1 gram of gold.
The highest valuation of the Australian dollar relative to the U.S. dollar was during the period of the peg to the U.S. dollar. On 9 September 1973, the peg was adjusted to US$1.4875, the fluctuation limits being changed to US$1.485–US$1.490; on both 7 December 1973 and 10 December 1973, the noon buying rate in New York City for cable transfers payable in foreign currencies reached its highest point of 1.4885 U.S. dollars to one Australian dollar.
On Monday 12 December 1983, the Australian dollar was floated, allowing its value to fluctuate dependent on supply and demand on international money markets. The decision was made on 8 December 1983 and announced on 9 December 1983.
In the two decades that followed, its highest value relative to the US dollar was $0.881 in December 1988. The lowest ever value of the Australian dollar after it was floated was 47.75 US cents in April 2001. It returned to above 96 US cents in June 2008, and reached 98.49 later that year. Although the value of the Australian dollar fell significantly from this high towards the end of 2008, it gradually recovered in 2009 to 94 US cents.
On 15 October 2010, the Australian dollar reached parity with the US dollar for the first time since becoming a freely traded currency, trading above US$1 for a few seconds. The currency then traded above parity for a sustained period of several days in November, and fluctuated around that mark into 2011. On 27 July 2011 the Australian Dollar hit a record high since the floating of the dollar. It traded at a $1.1080 against the US Dollar. Some have even suggested the dollar could rise as high as 1.70 USD by 2014.
Some commentators speculate that the value of the dollar in 2011 is related to Europe's sovereign debt crisis, and Australia's strong ties with material importers in Asia and in particular China.
Economists posit that commodity prices are the dominant driver of the Australian dollar, and this means changes in exchange rates of the Australian dollar occur in ways opposite to many other currencies. For decades, Australia's balance of trade has depended primarily upon commodity exports such as minerals and agricultural products. This means the relative value of the dollar varies significantly during the business cycle, rallying during global booms as Australia exports raw materials, and falling when mineral prices slump or when domestic spending overshadows the export earnings outlook. This movement is in the opposite direction to reserve currencies, which tend to be stronger during market slumps as traders move value from falling stocks into cash.
The Australian dollar is a reserve currency, and it is one of the most traded currencies in the world. Other factors include a relative lack of central bank intervention, and general stability of the Australian economy and government. In January 2011 at the World Economic Forum in Davos, Switzerland, Alexei Ulyukayev announced that the Central Bank of Russia would begin keeping Australian dollar reserves.
Interest Rate Decisions 2008–2013
Effective Date / Change in cash rate / Percentage points / New cash rate target / Per cent
7 Aug 2013 -0.25 2.50
3 Jul 2013 0.00 2.75
5 Jun 2013 0.00 2.75
8 May 2013 -0.25 2.75
3 Apr 2013 0.00 3.00
6 Mar 2013 0.00 3.00
6 Feb 2013 0.00 3.00
5 Dec 2012 -0.25 3.00
7 Nov 2012 0.00 3.25
3 Oct 2012 -0.25 3.25
5 Sep 2012 0.00 3.50
8 Aug 2012 0.00 3.50
4 Jul 2012 0.00 3.50
6 Jun 2012 -0.25 3.50
2 May 2012 -0.50 3.75
4 Apr 2012 0.00 4.25
7 Mar 2012 0.00 4.25
8 Feb 2012 0.00 4.25
7 Dec 2011 -0.25 4.25
2 Nov 2011 -0.25 4.50
5 Oct 2011 0.00 4.75
7 Sep 2011 0.00 4.75
3 Aug 2011 0.00 4.75
6 Jul 2011 0.00 4.75
8 Jun 2011 0.00 4.75
4 May 2011 0.00 4.75
6 Apr 2011 0.00 4.75
2 Mar 2011 0.00 4.75
2 Feb 2011 0.00 4.75
8 Dec 2010 0.00 4.75
3 Nov 2010 +0.25 4.75
6 Oct 2010 0.00 4.50
8 Sep 2010 0.00 4.50
4 Aug 2010 0.00 4.50
7 Jul 2010 0.00 4.50
2 Jun 2010 0.00 4.50
5 May 2010 +0.25 4.50
7 Apr 2010 +0.25 4.25
3 Mar 2010 +0.25 4.00
3 Feb 2010 0.00 3.75
2 Dec 2009 +0.25 3.75
4 Nov 2009 +0.25 3.50
7 Oct 2009 +0.25 3.25
2 Sep 2009 0.00 3.00
5 Aug 2009 0.00 3.00
8 Jul 2009 0.00 3.00
3 Jun 2009 0.00 3.00
6 May 2009 0.00 3.00
8 Apr 2009 -0.25 3.00
4 Mar 2009 0.00 3.25
4 Feb 2009 -1.00 3.25
3 Dec 2008 -1.00 4.25
5 Nov 2008 -0.75 5.25
8 Oct 2008 -1.00 6.00
3 Sep 2008 -0.25 7.00
6 Aug 2008 0.00 7.25
2 Jul 2008 0.00 7.25
4 Jun 2008 0.00 7.25
7 May 2008 0.00 7.25
2 Apr 2008 0.00 7.25
5 Mar 2008 +0.25 7.25
6 Feb 2008 +0.25 7.00