Banking in Australia
This article needs additional citations for verification. (January 2007) |
Banking in
Banks require a bank licence under the Banking Act 1959. Foreign banks require a licence to operate through a branch in Australia, as do Australian-incorporated foreign bank subsidiaries. Complying religious charitable development funds are exempt from the banking licence requirement.[3]
Australia has a sophisticated, competitive and profitable financial sector and a strong regulatory system.[4] For the 10 years ended mid-2013, the Commonwealth Bank was ranked first in Bloomberg Riskless Return Ranking a risk-adjusted 18%. Westpac Bank was in fourth place with 11% and ANZ Bank was in seventh place with 8.7%.[5] The four major banks are among the world's largest banks by market capitalisation and all rank in the top 25 globally for safest banks. They are also some of the most profitable in the world.[4] Australia's financial services sector is the largest contributor to the national economy, contributing around $140 billion to GDP a year. It is a major driver of economic growth and employs 450,000 people.[4]
Financial institutions
Deregulation of the financial sector commenced in the mid-1960s, with the removal of the distinction between and separation of trading and savings banks. Building societies were allowed to take deposits from the public. Banking in Australia is notable by the small number of large banks in the market. Much of this concentration is the result of bank acquisitions.
Big four banks
In 1990, the government adopted a "four pillars policy" in relation to banking in Australia and announced that it would reject any mergers between the big four banks.[6] This is long-standing policy rather than formal regulation, but it reflects the broad political unpopularity of further bank mergers. A number of commentators have argued that the "four pillars policy" is built upon economic fallacies and works against Australia's better interests.[7]
The four pillars policy does not prevent the four major banks from acquiring smaller competitors. In 2000, CBA acquired the Colonial Group, which had emerged as a major bank–insurance combine in the 1990s, after the Colonial Mutual insurance group took over State Bank of New South Wales in 1994. The Commonwealth Bank also acquired the State Bank of Victoria in 1990 and Bankwest in 2008. Westpac acquired Challenge Bank in 1995, Bank of Melbourne in 1997, and St George Bank in 2008.[8]
Currently, banking in Australia is dominated by four major banks: Commonwealth Bank, Westpac, ANZ Bank and the National Australia Bank. The top four banking groups in Australia ranked by market capitalisation at share price 1 December 2017:
Rank | Company | Market capitalisation (2017) |
Cash earnings (2015) |
Total assets (2016) |
---|---|---|---|---|
1 | Commonwealth Bank (CBA) | A$139.219 billion[9] | A$9.14 billion[10] | A$933.078 billion[11] |
2 | Westpac (Westpac) | A$106.821 billion[9] | A$7.82 billion[12] | A$839.202 billion[11] |
3 | Australia & New Zealand Banking Group (ANZ) |
A$83.599 billion[9] | A$7.22 billion[13] | A$914.900 billion[11] |
4 | National Australia Bank (NAB) | A$79.465 billion[9] | A$5.84 billion[14] | A$777.622 billion[11] |
Mutual banking in Australia
The Customer Owned Banking Association (formerly known as Abacus Australian Mutuals) is the industry body representing the more than 100 credit unions, building societies and mutual banks that constitute the Australian mutual or cooperative banking sector.[15]
Collectively, Australian customer-owned banks service 4.6 million customers or 'members' (as they are mutual shareholders in the institutions), with total assets of over
Rank | Institution | Total assets |
---|---|---|
1 | Great Southern Bank |
A$ 19.5 billion
|
2 | Newcastle Permanent |
A$ 11.1 billion
|
3 | Heritage Bank | A$ 10.7 billion
|
4 | People's Choice Credit Union | A$ 9.5 billion
|
5 | Teachers Mutual Bank | A$ 8.1 billion
|
6 | Greater Bank | A$ 7.5 billion
|
7 | Bank Australia | A$ 7.2 billion
|
7 | Beyond Bank Australia | A$ 7.1 billion
|
9 | IMB Bank | A$ 6.7 billion
|
10 | P&N Bank | A$ 6.2 billion
|
Great Southern Bank is Australia's largest customer owned bank having achieved this status with the rebranding from Credit Union Australia on 1 June 2021. Previously Heritage Bank was Australia's largest customer-owned bank, having changed its name from Heritage Building Society in December 2011. A number of credit unions and building societies changed their business names to include the word 'bank', to overcome adverse perceptions of smaller deposit-taking entities. For example, in September 2011 Bank Australia (formerly Bankmecu) was announced as Australia's first customer-owned bank.[18]
Three teachers' credit unions have become known as 'banks'; namely, RACQ Bank (formerly the Queensland Teachers' Credit Union), Bank First (formerly the Victoria Teachers' Credit Union), and Teachers Mutual Bank (formerly Teachers Credit Union).[19] The Police & Nurses' Credit Union began trading as P&N Bank in March 2013, and some credit unions are electing to use 'mutual banking' as a business tagline, rather than as a business name, as they do not meet the criteria to be called a 'bank'.[20]
Other retail banks
There are other retail banks in Australia. These are smaller and often
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 engaging in retail banking require a full banking licence. 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;
Foreign banks have a more significant presence in the Australian merchant banking sector.
Regulation
Formally, there is extensive and detailed regulation of Australia's banking system, split mainly between the
APRA is responsible for the licensing and prudential supervision of authorised deposit-taking institutions (ADIs) (banks, building societies, credit unions, friendly societies and participants in certain credit card schemes and certain purchaser payment facilities), as well as life and general insurance companies and superannuation funds. APRA issues 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
Banks are also subject to obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 as "reporting entities". They are required to identify and monitor customers using a risk-based approach, develop and maintain a compliance program, and report to Australian Transaction Reports and Analysis Centre certain cash transactions as well as suspicious matters and file annual compliance reports.
There have been calls in recent times for an added level of regulation of banks following lending, foreign exchange, and financial planning controversies between 2009 and 2017, highlighted in 2016 Senate inquiries.[22][23] Referring to white collar crime, ASIC's Chairman Greg Medcraft said 'This is a bit of paradise, Australia, for white collar [crime]'.[24] In December 2017 the Australian Government established the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry to inquire into and report on misconduct in the banking, superannuation and financial services industry.[25][26] The interim report[27] from the Royal Commission prompted the industry to revamp its banking code. The code has been criticised[28] as needing to be legally binding, strictly liable and breaches criminal.[29]
Interbank lending market
During the course of every day, each bank executes a large number of transactions, such as payroll, retail and business purchases, credit card payments, etc. Some involve cash (or its equivalent) coming into the bank and others of cash going out. Banks do not have a reliable way of predicting what or how much those transactions will be. At the end of each day banks must reconcile their positions. The bank that finds itself with a surplus of cash would miss out earning interest on the cash, even if it's for only one night. Other banks may find that they had more money going out than coming in, and the bank must borrow cash to cover the shortfall. To meet its liquidity obligations, the bank with the shortfall would borrow from a bank with a surplus in the
Until July 2017 a body called the Australian Financial Markets Association (AFMA) determined the BBSW rate. Since July 2017 the ASX calculates the rate.
There arises from time to time a situation when there are insufficient funds in the interbank lending market to enable the banks to balance their books. Some banks, for example, may be experiencing a bank run or may be withholding funds from the market expecting a heightened demand in the near future. The Reserve Bank's role includes ensuring liquidity in the banking system, including acting as lender of last resort in times of a liquidity crisis.[33]
International cooperation
The United States has enacted the
History
Early history
Between white settlement in
The
In 1835 a London-based bank called the Bank of Australasia was formed
A speculative boom in the Australian property market in the 1880s led to the Australian banking crisis of 1893. This was in an environment where little government control or regulation of banks had been established and led to the failure of 11 commercial banks, even the National Bank of Australasia.
Until 1910, banks could issue private bank notes, except in Queensland which issued treasury notes (1866–1869) and banknotes (1893–1910)[37] which were legal tender in Queensland. Private bank notes were not legal tender except for a brief period in 1893 in New South Wales.[37] There were, however, some restrictions on their issue or other provisions for the protection of the public. Queensland treasury notes were legal tender in that state.
After federation
Private bank notes and treasury notes continued in circulation until 1910, when the federal Parliament passed the Australian Notes Act 1910 which prohibited the circulation of state notes as money and the Bank Notes Tax Act 1910 imposed a prohibitive tax of 10% per annum on 'all bank notes issued or re-issued by any bank in the Commonwealth ... and not redeemed'. These Acts put an end to the issue of notes by the trading banks and the Queensland Treasury. Also in 1910, the Australian pound was first issued as the legal tender in Australia. Now, the Reserve Bank Act 1959 expressly prohibits persons from issuing bills or notes payable to bearer on demand and intended for circulation.[38]
The federal government established the Commonwealth Bank in 1911, which by 1913 had branches in all six states. In 1912, it took over the State Savings Bank of Tasmania (est. 1902)[39] and did the same in 1920 with the Queensland Government Savings Bank (est. 1861). As with many other countries, the Great Depression of the 1930s brought a string of bank failures. In 1931, Commonwealth Bank took over two faltering state savings banks: the Government Savings Bank of New South Wales (est. 1871) and the State Savings Bank of Western Australia (est. 1863). In 1991, it also took over the failing State Bank of Victoria (est. 1842).
As a response to the Great Depression, banking in Australia became tightly regulated. Until the 1980s, it was virtually impossible for a foreign bank to establish branches in Australia; with the consequence that Australia had fewer banks compared to countries such as the
From 1920, the Commonwealth Bank performed some central bank functions, which were greatly expanded during World War II. This arrangement caused some discomfort for the other banks, and as a result the Reserve Bank of Australia was created on 14 January 1960 and assumed the central bank functions previously performed by the Commonwealth Bank, including managing the currency, the money supply and exchange control.
Adoption of new technology
Banks have adopted new technologies in order to reduce operating costs. The rollout of
The use of the
EFTPOS technology was introduced in 1984. Initially, only the banks' existing debit and credit cards could be used, but in 1985, the ATM (Financial) Network was created to link EFTPOS systems to provide access for all customers. Cards issued by all banks could then be used at all EFTPOS terminals nationally, but debit cards issued in other countries could not. Prior to 1986, the Australian banks organized a widespread uniform credit card, called Bankcard, which had been in existence since 1974. There was a dispute between the banks whether Bankcard (or credit cards in general) should be permitted into the proposed EFTPOS system. At that time several banks were actively promoting MasterCard and Visa credit cards. Store cards and proprietary cards, such as fuel cards and Bartercard, were shut out of the new system, though they use compatible technology.
The widespread acceptance of credit cards and the development of
Deregulation and concentration
The banking industry was slowly deregulated. In the mid-1960s, the distinction between and separation of trading and savings banks was removed and all banks were allowed to operate in the
Banking in Australia is notable by the small number of large banks in the market. Much of this concentration is the result of bank acquisitions.
In 1990, the government adopted the "four pillars policy" in relation to banking in Australia and announced that it would reject any mergers between the four big banks.
The Australian government's direct ownership of banks ceased with the full privatisation of the Commonwealth Bank between 1991 and 1996. There was also increased competition from non-bank lenders, such as providers of
Following the
At the time, consumer credit in Australia was primarily loaned in the form of
In June 2017 the Treasurer, Hon Scott Morrison MP, initiated the Open Banking Review. Open Banking is to encourage more efficiency in the market, create new opportunities for market entrants, encourage competition and give customers greater control over their data. This was finalised in March 2018.[46]
In 2018 APRA created a restricted ADI framework.[47] The framework is designed to encourage new entrants to the banking industry, particularly small firms with limited financial resources, to navigate the licensing process. Eligible entities can conduct a limited range of business activities for two years while they progress towards an unrestricted status. APRA announced and authorised the first restricted ADI, Volt Bank, on 7 May 2018. On 1 September 2022, APRA announced it had revoked Volt Bank Limited's (Volt) authorised deposit-taking institution (ADI) licence under the Banking Act 1959.[48]
Former government-owned Bank
- State Bank of Victoria (1842-1990)
- Bankwest (1895-1995)
- State Bank of South Australia (1896-1991)
- Commonwealth Bank (1911-1991)
- State Bank of New South Wales (1933-1994)
- Trust Bank of Tasmania (1991-1999)
See also
- Australian Banking Association
- Economy of Australia
- Financial system in Australia
- List of banks in Australia
- Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
- Timeline of banking in Western Australia
- Banking Code
References
- ^ "Best Business Bank Accounts in Australia for 2023 | Zeller".
- ^ "Australian Government Deposit Guarantee Design & Operational Parameters, Department of the Treasury accessed 18 June 2010" (PDF). Archived from the original (PDF) on 13 October 2009. Retrieved 23 December 2017.
- ^ Exemption Order No. 1 of 2017
- ^ a b c Australian Treasury, The strength of Australia’s financial sector
- ^ "Imbal hasil bank asal Australia Jawara". 12 June 2013.
- ^ a b Press Release: RELEASE OF THE REPORT OF THE FINANCIAL SYSTEM INQUIRY AND INITIAL GOVERNMENT RESPONSE ON MERGERS POLICY
- ^ Marks, Bob; Young, Owen (22 August 2005). "Four pillars debate needs refining: AFR Economic Briefing". Archived from the original on 5 February 2008. Retrieved 24 January 2008.
- ^ a b Westpac-St George merger won't topple four-pillars Archived 15 May 2008 at the Wayback Machine, The Age, 15 May 2008
- ^ a b c d "ASX 200 List of Companies – Directory". www.asx200list.com. Retrieved 10 February 2016.
- ^ "fy15-media-release-asx" (PDF). www.commbank.com.au. Retrieved 14 February 2016.
- ^ a b c d "Top Banks in Australia | 2017 Ranking | Review of the Best and Largest Banks in Australia – AdvisoryHQ". www.advisoryhq.com.
- ^ "Westpac_FY15_financial_results" (PDF). www.westpac.com.au. Retrieved 14 February 2016.
- ^ "fy15_results_investor_discussion_pack_-_final_asx_lodgement" (PDF). www.shareholder.anz.com.au. Archived from the original (PDF) on 17 February 2016. Retrieved 14 February 2016.
- ^ "2015%20asx%20announcement" (PDF). www.nab.com.au. Retrieved 14 February 2016.
- ^ "Australian Mutuals". Abacus. Retrieved 6 June 2012.
- ^ "Fact Sheets". Abacus. 1 February 2012. Retrieved 6 June 2012.
- ^ "Building Societies and Credit Unions: 2020" (PDF). 15 January 2021. Retrieved 28 December 2013.
- ^ "Australia's First Customer Owned Bank | Bank Australia". BankAustralia. Retrieved 8 November 2023.
- ^ "Teachers Credit Union to re-brand". Banking Day. 12 October 2011. Retrieved 5 April 2012.
- ^ "Home - Select Credit Union". Selectcu.com.au. Retrieved 6 June 2012.
- Australian Securities & Investments Commission. Archived from the originalon 30 November 2015. Retrieved 17 January 2016.
- Australian Parliament House. Canberra: Australian Government. Retrieved 17 January 2016.
- Australian Parliament House. Canberra: Australian Government. Retrieved 17 January 2016.
- ^ "Trouble in paradise: Greg Medcraft's white collar crime comments get people hot under the collar". The Sydney Morning Herald. 24 October 2014. Retrieved 17 January 2016.
- ^ Turnbull, Malcolm (1 December 2017). "Appointment of Royal Commissioner". Prime Minister of Australia (Press release). Canberra. Archived from the original on 1 December 2017. Retrieved 1 December 2017.
- ^ Gribbin, Caitlyn (1 December 2017). "Banking royal commission: Government appoints former Judge Kenneth Hayne to lead inquiry". ABC News. Australia. Retrieved 1 December 2017.
- ^ https://web.archive.org/web/20181028225606/https://financialservices.royalcommission.gov.au/Pages/interim-report.aspx
- ^ https://theconversation.com/bank-codes-of-conduct-add-bars-to-the-window-dressing-and-make-them-legally-binding-105391
- ^ Bank codes of conduct: add bars to the window dressing and make them legally binding https://theconversation.com/bank-codes-of-conduct-add-bars-to-the-window-dressing-and-make-them-legally-binding-105391
- ^ Australia, scheme=AGLSTERMS AglsAgent; corporateName=Reserve Bank of; Australia, scheme=AGLSTERMS AglsAgent; corporateName=Reserve Bank of. "Cash Rate Target". Reserve Bank of Australia. Retrieved 11 December 2021.
{{cite web}}
: CS1 maint: multiple names: authors list (link) - ^ https://asxonline.com/public/notices/2017/jul/0779.17.07.html
- ^ "Why you should care about the bank bill swap rate". The Newdaily. 12 April 2016. Retrieved 31 January 2018.
- ^ Liquidity and the Lender of Last Resort, speech by Glenn Stevens, Governor of Reserve Bank of Australia, 15 April 2008.
- ^ "Australia-US Intergovernmental Agreement (IGA) to improve international tax compliance and to implement FATCA (the US Foreign Account Tax Compliance Act)". Australia Department of the Treasury. Archived from the original on 6 August 2017. Retrieved 4 February 2018.
- ^ M. J. B. Kenny. "Hall, Edward Smith (1786–1860)". Biography - Edward Smith Hall - Australian Dictionary of Biography. Adb.online.anu.edu.au. Retrieved 6 June 2012.
- ^ "Bank of Australasia (incorporated by Royal Charter, 1835), London Office, no. 8, Austin Friars : paid up capital £900,000, Directors ... - Version details - Trove". trove.nla.gov.au. Retrieved 10 February 2016.
- ^ a b Pitt 2013, p. 180.
- ^ "The Australian note issue". Commonwealth of Australia. January 1966. Retrieved 14 November 2014.
- ^ "History - Amalgamations - CommBank". www.commbank.com.au.
- ^ Bradney-George, Amy (4 August 2010). "Australian Bank ATM Fees and Charges | Finder". finder.com.au.
- ^ "Customer Loyalty in Retail Banking Global Edition 2012" (PDF). Bain.com. Bain. Retrieved 24 July 2015.
- ^ See List of countries by mobile banking usage
- ^ Parliament of Australia, 2002-04, Chapter 2 - Bank branch closures in rural, regional and remote Australia
- ^ Weekly Times Now, 8 November 2017, Bank branch closures across rural Australia put towns on brink
- ^ JSTOR 2977336.
- ^ "Review into Open Banking in Australia". www.treasury.gov.au. Retrieved 13 May 2018.
- ^ "APRA finalises new Restricted ADI licensing framework". APRA. Archived from the original on 9 May 2018. Retrieved 10 May 2018.
- ^ "Australian Bank Volt Collapses | Australian Financial Complaints Authority".
Sources
- Pitt, Michael T. (2013). Renniks Australian Coin and Banknote Values: Over 49 Years as the Premier Guide for Coins and Banknotes. Renniks Publications. ISBN 978-0-9873386-2-4.