Regulation of Australian Banks: Historical Overview and Future Trends

This report provides a comprehensive analysis of the regulation of Australian banks, tracing the evolution of the banking sector from its inception in the 19th century to the present day. It details the dominance of the 'big four' banks, their services, and their significant role in the financial sector. The report explores the historical context of banking regulation, including the impact of the Great Depression and the evolution of central banking. It examines key regulatory bodies like APRA, RBA, and ASIC, and their roles in maintaining stability. The analysis further discusses the impact of technological advancements, deregulation, and the 'four pillar policy'. The report concludes by assessing the current state of the Australian banking system, including the presence of foreign and regional banks, and anticipates future trends such as innovation, customer management, and technological advancements, emphasizing the need for banks to adapt and prioritize customer relationships to thrive in the evolving financial landscape.

REGULATION OF
AUSTRALIAN
BANKS-PAST,
PRESENT AND
FUTURE.

1
By student name
Professor
Date: 16 September, 2017.
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Contents
1.Introduction…………………………………………………………………..........…...4
2.Research…………………….........................................................................................5
3.Analysis……………………........................................................................................... 7
4.Recommendations..........................................................................................................8
5.Conclusion ......................................................................................................................9
6.References...................................................................................................................... 10
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1. Introduction
The first banking institution was launched in Australia in 19th century. Since then there has
been a lot of reforms in the banking sector. In Australia at present there are four banking
institution that dominates the overall banking sector which are Australia and New Zealand
Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited
and Westpac Banking Corporation. Over the years there has been an increase in the overall
importance of the banks, the banks today contribute to half of the total assets of the financial
sector. The banks today have diverged into a lot of sector the most important being asset
management and insurance. They play the most important role in the overall financial sector and
holds the most of the financial assets of the country. The banks provide a lot of services to the
consumer from the normal lending activities to deposit taking to other advanced services like
asset management, insurance, brokerage, management of the financial markets etc. From the first
bank that was opened in the 19th century till today there has been huge development and growth
and the same can be seen in the strong position that the banking company holds in the financial
sector. At present there are as many as 53 banks that are functioning in Australia and out of them
14 banks are owned by the Australians (Bakir, 2017). There are no banks in the country that are
owned by the Australian Government, the last share of the same was sold out in 2011. The banks
that are present now are supervised by the Australian Prudential Regulation Authority (APRA).
There has been huge growth in the banking sector and the same is reflected in the market share
of these banks. A brief history of these banks and their overall current position is given below.
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2. Research
The first Australian bank was opened in the 19th century as already stated above. To the end
of the nineteenth century during the great depression, a large number of banks colonial banks
failed. In 1901, a legislation was formed to supervise these banks, a central bank was formed and
also it became a common wealth responsibility to manage these banks. After the second world
war there were new rules framed. People were of the opinion that if the government was
handling and controlling these banks then they also had the power to control the economy. To
fight the same, new and strict banking rules were framed to guide the overall lending and credit
facilities. The RBI was framed as the central bank which was given the responsibility of
managing all the other banks. However with the change in the overall world trends, there was
shift in the overall banking thoughts and deregulation became the norm of the season. Following
that there were further many changes in the overall banking facilities of the world and it was also
determined that stronger norms need to be developed. There has been a very fast growth in the
overall banking balance sheet, at an average rate of thirteen percent since the end of the 1985. It
reflects the overall demand and supply factors that exists in the economy and the overall effect
that it is having on the banking sector and its regulations. During the 1990s recession the banks
were one party that was very badly hit, and there was also huge decrease in the overall banking
loan facility. The overall foreign funding since the time of recession has improved, with people
trying to get third party brokers that can help them in generation of funds that they can employ in
their business. After the establishment of the common wealth norms for the management of the
overall banks, they have seen that there has been huge increment in the overall banking
management. The growth has been supported by strict banking policies and norms. The
government was not allowed to control the banking institutions; hence the economy was also not
in their hands.
The key parties that regulate the overall banking scenario include the RBA, the APRA and
the ASIC. These parties are mainly responsible for framing the rules and regulations that will
help in maintain the stability in the banking system. If any company fails to abide by the same
then they can be penalized. Before beginning their operations in Australia every Company needs
to have the permission of the APRA. Even the foreign owned banks are required to follow these
guidelines. These standards are basically set to regulate a large number of operations that are
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related to the overall capital adequacy, management of the funds, securitization, maintain proper
quality credits and many other. If people are in any case not happy with the services of the banks
or they have any complaints then they can improve these authorities to take the necessary action.
These institutions set the limitation to the banking industry and make it more stable and prevent
malfunction in operations. The licenses of the banks will be canceled if they do not comply with
the provisions of the banking rules. It is important that all the rules related to the banking
company must be taken by keeping the same in mind. This will help in avoiding such situations
and help in making system more transparent and better. It also helps in improving the inter-
governmental cooperation from other parts of the world. Thus it is an important change in the
traditional banking system and has made it stronger and better.
The Australian banks experienced huge amount of technological development and growth
from the end of the 1969, when various automatic teller machines were installed and infusement
of the information technology and its management became an important part of the banking
system. By the mid of 1960, deregulation had started and that has also affected a large number of
banks. In 1980s the banking sector experienced a high point when a large number of banks were
established and some good acquisitions took place (Yates, 2017). There was a lot of advantages
that were associated with the overall deregulation as it allowed many credit unions and budding
societies to become banks without going into mutation. The Government of Australia launched
the “four pillar policy” in the banking sector as per which the four major banks of Australia
cannot merge with each other. However these banks are allowed to absorb small competitors that
would help in their growth and development. With time there was growth in competition and that
was evident from many smaller banks that were opened in Australia. However none of the banks
were owned by the Australian government, and most of the banks were under the control of
private parties. The last government owned bank was sold out in 2011, and after that the banks
were all privatized and strict guidance rules were framed that these banks had to follow strictly.
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3. Analysis
At present there are four major banks in Australia and are guided by the four pillar policy
that prevents these banks from getting merged with each other. These are the pillars of strength
of the overall banking system. These banks are very large and have huge market share. As per
the world rank, these banks together are ranked at 80 and in respect of the market capitalization
the overall rank is 50. These banks have around $960billion of assets in their books, along with
that they have contributed hundred percent to the total GDP share of the country. They have been
very profitable in the past years, earning a total pre tax return of 21 percent. The major profits
that these banks earn are mostly from non banking activities that includes many services like
fund management, asset management, management of other resources etc. These banks have also
indulged in a lot of acquisitions and ventures that has helped in their overall growth. Apart from
these four banks, there are few other banks that are known as regional whose main area of focus
is management of the retail banking area wise. These are a group five Australian owned banks.
Over the years they have tried hard to improve their overall business by investing in other sectors
and by providing discounted services to the customers. These banks collectively contribute to
around 8 percent of the total market share in the banking industry of Australia.
There are also few foreign owned banks in Australia that contributes to around 20 percent of
the overall banking system in the country. Before hand in 1990s these foreign banks were
focused mostly on whole sale business and failed miserably. But now in the present times, they
are focusing on the retail sector by providing attractive deals to the consumer and generate more
money. It has been the first to provide the customer interest based saving accounts that can help
them in attracting more revenue (Anginer & Kunt, 2014). The largest owned foreign bank is also
the eighth largest domestic bank that contributes bout 2.5 percent to the total market share. The
two major activities of these banks are insurance and fund management, but very banks are able
to make profit from these non banking activities. At present there are total 53 banks that are
operating in Australia and none of them are owned by the government authorities. The present
situation of the banking system in Australia is very assertive where people can anticipate growth
in the coming times.
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There are several changes that are anticipated to occur in the future banking system owning
to the present state of flux. In the coming years there are few basic changes that the banking
sector needs to bring with regard to the following-
• To bring innovation into the system and place their focus on specific areas
• To enhance the overall customer management system and simplify the same
• To Make sure that the overall value chain is optimized
• To put culture in the work that is done
The banks that are able to do the same will be more valuable in the future than what they are
today. In the present times it can be seen that the industry is looking forward to fundamental
realignment. So the need of the hour for these banking companies will be to survive the
transition phase and the make the changes that are required (Arnott, et al., 2017). It is very
important that the banks of tomorrow become simple smaller and are connected more to the
consumers. These will help the consumers and the banks in developing better relationship and
will also help in better management of the resources. It is also important for the banks in the
future of escape the commodity traps, and provides services that they are meant to provide. It is
important to note that so many banks are treating the customers are potential product purchaser
where they rae trying to sell their properties (Mayntz, 2017). This is not correct and in the long
run it is important for the banks to escape the overall commodity trap. The companies need to
assemble the overall capability system that refers to management of the resources, cultural
attributes and other factors and aligning the same with the needs of the customer. These are the
basic steps that the banking companies need to take in the future. As of now on the present
pretext it can be said that the banking sector will be going more changes in the future, the
overalls system will become more technology savvy. Automation will become the order to the
day and there is a possibility that there will be few government regulations and more
liberalization will be there in the overall banking sector This may be considered as the future of
the overall banking scenario is Australia (Trieu, 2017). It can be said that the future of the
banking sector seems bright if some small changes are brought in and more focus in given on the
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consumers rather than on the products. This is the way the banking company functions in toady
time and this is required to be changed.
4. Recommendations
As stated above the banking sector needs to align its overall functions with the needs of
the customer and needs to make sure that it is able to escape the commodity trap. This will help
the overall business to grow. The overall proves should become less commercialized and focus
should be on the fact that quality services is provided to the consumers. . So the need of the hour
for these banking companies will be to survive the transition phase and the make the changes that
are required. It is very important that the banks of tomorrow become simple smaller and are
connected more to the consumers. This will help in improving the confidence of the public in the
company (Dowding, 2017). The overall banking rules also must become less complex so that
more and more companies can easily follow them and in case the deviates from the same,
penalties must be levied. Proper audit of the banking company must be done from time to time to
make sure that the overall financial statements are free from errors. They must reflect the actual
position of the overall business functions and its stand in the market, so that it might help the
customers in taking important decisions with regard to the same.
5. Conclusion
Hence after the entire analysis it can be said that the banking business in Australia has
developed a lot. There has been so many changes that is reflected in the strong market position of
the banking companies. It is important for the government to make sure that the banking
companies are more liberalized and free and the overall steps that they take for the development
of these banks is properly implemented. This research paper throws a light on the growth of the
banking in Australia from the very initiation point, and the several changes that it has undergone
over the years (Adapa & Roy, 2017). The present situation is bright, the companies are doing
well and the customers have so many good banking options to choose from. The only thing that
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is needed that the growth of the domestic banks must be more than the foreign owned banks, this
will help in the growth of the overall economy (Kohtamäki, 2017). The overall system is fine and
is doing well in comparison with the present banking system in the global scenarios of the world.
Refrences
Adapa, S. & Roy, S., 2017. Consumers’ post-adoption behaviour towards Internet banking: empirical
evidence from Australia. Behaviour & Informtaion Technology, 36(9), pp. 970-983.
Anginer, D. & Kunt, A., 2014. Has the global banking system become more fragile over time?. Journal of
Financial Stability, Volume 13, pp. 202-213.
Arnott, D., Lizama, F. & Song, Y., 2017. Patterns of business intelligence systems use in organizations.
Decision Support Systems, Volume 97, pp. 58-68.
Bakir, c., 2017. How do mega-bank merger policy and regulations contribute to financial stability?
Evidence from Australia and Canada. Journal of Economic Policy Reform, pp. 1-15.
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Dowding, K., 2017. Australian exceptionalism reconsidered. Australian journal of Political Science, 52(2),
pp. 165-182.
Kohtamäki, M., 2017. Real-time Strategy and Business Intelligence: Digitizing Practices and Systems.
Finland: Palgrave Macmillan.
Mayntz, R., 2017. Networked Governance. s.l.:Springer.
Trieu, V., 2017. Getting value from Business Intelligence systems: A review and research agenda.
Decision Support Systems, Volume 93, pp. 111-124.
Yates, J., 2017. Protecting housing and mortgage markets in times of crisis: a view from Australia.
Journal of Housing and the Built Environment, 29(2), pp. 361-382.
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