The Australian Banking System: Regulations, History, and Future

This essay provides a comprehensive overview of the Australian banking system. It begins with a historical perspective, tracing the establishment and evolution of banks in Australia, including the major players and their growth. The essay then delves into the regulatory framework, outlining the roles and responsibilities of key bodies like APRA, ASIC, the Australian Treasury, and the Reserve Bank of Australia (RBA). It examines the RBA's monetary policy tools and presents a table of exchange rates. The essay also analyzes current trends, technological advancements, and potential challenges facing the banking system, such as customer satisfaction and home ownership. The analysis covers the four pillars policy and the impact of deregulation. In conclusion, the essay provides a detailed understanding of the Australian banking sector's past, present, and potential future developments.

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Introduction
This essay is based on the banking system of Australia. This essay contains past, present and
future regulation of Australian banks. This essay describes the establishment of first bank in
Australia and the years when the first bank of Australia opened its branches across Australia,
the major four banks of Australia and the sum total of domestic assets with them, the four
regulatory bodies and their roles and responsibilities in the development of banking system
and the economy of Australia, central bank of Australia and the monetary policy tools with
the central bank, a table of exchange rates of Reserve bank of Australia (Adapa and Roy,
2017). This essay contains history of almost all the banks of Australia and some factors are
also discussed which can affect the growth of banking system in future.
Research
Before 1817, there were no banks in Australia. According to Bryan Fitz-Gibbon and Marianne
Gizycki, the first bank of Australia was the Bank of New South Wales. In 1817, this bank was
established in Sydney. The bank opened its branches during nineteenth and early twentieth
century across Australia and Oceania. The first branch of this bank was opened in 1850 at
Morton Bay. Second branch was established in 1851 in Victoria then third branch was opened
in 1861 in New Zealand, fourth branch was established in 1877 in South Australia, fifth
branch was established in 1883 in Western Australia, the sixth branch was established in Fizi
in 1901 and the seventh branch was established in Tasmania in 1910 (Ahmed and Ndayisaba,
2016). After this, the Commercial banking company of Sydney was established. The next
bank after the Commercial banking company of Sydney was the National bank of Australasia.
This bank was established in 1858 and later opened its branches in Tasmania in 1859,
Western Australia in 1866, New South Wales in 1885, Queensland in 1920 and London bank
in 1864. In the opinion of G.D. Carnegie in 2016, the National Commercial banking
corporation of Australia was formed with the merger of the Commercial banking company
and the National bank of Australasia. This bank was later renamed as the National Australian
bank (Hudson, et al., 2017). During 1960s, Australian banks have adopted new technologies
in order to reduce operating costs. In Australia, automated teller machine (ATM’s)
commenced in 1969. The largest five banks which are using a number of automated teller
machine were: the NAB-redi ATM with over 3400 machines, ANZ with over 2600 machines,
the Commonwealth bank-Bank west network with over 4000 machines, Suncorp with over
2000 machines and Westpac-St.george-Bank SA and Bank of Melbourne with over 3000
machines (The Conversation, 2016).

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According to T.P. Truong, and N.N. Nguyen, N.N. (2017), there is a difference of
effectiveness, quality and accessibility between the current and previous banking. The use of
technology in the current banking system is also increased. As per the opinion of L.Goss, the
customers were not satisfied with the services of banking system and said that lack of face-to-
face communication due to the excessive use of technology is the root cause for this
unsatisfaction. At the same time, the educated customers find it feasible because they are able
to do most of their banking formalities by the help of their mobile phones. Another
shortcoming was described by Tracey Dagger and Jillian Sweeney in the year 2007 that in the
initial stages, consumers rely on search based attributes. As per the view of Greg Jericho, the
retirement system is in trouble if the home ownership continues to shrink. As per the last
year’s census, only 34.5% of homes are owned with a mortgage. So, Australians are less
interested in buying homes than they were in past. As per the opinion of A. Lui, (2016), there
is integration between prudential regulation and financial stability.
After Federation
In 1910, parliament passed Australian notes. Before this, treasury notes and private bank
notes were circulated in Australia. 10% per annum tax was imposed under the Bank notes tax
act, 1910 on the banks notes issued or re-issued by any bank in the common-wealth and not
redeemed. This act leads to the end of notes issued by Queensland treasury and trading banks.
The Commonwealth bank was established by the Federal government during 1911 and it
opened its branches in six states by 1913 (International Monetary Fund, 2015). During 1980,
Australia had only a few banks as compared to other countries like Hong Kong and United
States. In Australia, the banks were classified into two categories i.e. trading banks and
savings banks. The trading banks did not provide any facilities to the general public. Savings
banks were the banks in which compulsory mortgage were needed for lending and they
charge no interest from the depositors.
Deregulation
In the mid 1960s, all the banks were allowed to operate in money market by removing the
separation of trading and savings bank. The banks were free to set their own interest rates.
During 1990, the Australian government adopted four pillars policy (MacDonald and van
Oordt, 2017). As per this policy, mergers were not allowed between the big four banks. These
four banks were not allowed to acquire any small bank. But this policy was breached when
the Commonwealth bank acquired the State bank of Victoria and West bank. Similarly,
Westpac acquired the Challenge bank, St. George bank and Bank of Melbourne.

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Analysis
It is analysed that there are 53 banks which are operating in Australia. The four major banks
of Australia include National Australia bank, ANZ banking group, Westpac banking group
and Commonwealth bank of Australia. The sum of assets with these four banks is around
$960 billion (Salter, et al., 2017). The Australian financial system is regulated by four
agencies i.e. the Australian Prudential Regulation Authority (APRA), the Australian Treasury,
the Australian securities and Investments Commission (ASIC) and the Reserve Bank of
Australia (RBA). The regulators are mainly ASIC and APRA. The main aim of Australian
securities and Investments commission is to prevent consumers from the manipulative market.
ASIC also takes of the licences of the participants of the financial system. The responsibilities
of Australian securities and investment commission include consumer protection, integrity of
market and the regulation of finance companies and investment banks (Truong and Nguyen,
2017). Australian securities and investment commission is having two types of EDRs
(External Dispute resolution Schemes) which are operating in Australia. One is Credit and
Investment Ombudsman (CIO) and second is Financial Ombudsman Service (FOS). The role
of both EDRs is to receive complaints and to work on these complaints in order to solve them.
These both are non-governmental and non-profit organizations. Financial service providers,
banks and financial advisors provide funds for these EDRs (Goss, 2017). APRA is the
regulator of the financial services of Australia. The vision of APRA is excellence in
supervision so that it will become the prudential regulator. Its mission is to make an efficient,
effective and competitive financial system. The financial transactions of Australia are
protected by APRA. The major values of APRA include excellence, integrity, honesty,
accountability and collaboration. The Australian Prudential Regulation authority is
responsible for the general insurance and reinsurance companies, credit unions, private health
insurance, building societies and members of the superannuation industry. The industries
which are supervised by APRA, provides funds for the regulation of it. The approach of
APRA is forward-looking so the main responsibility related to it is the estimation of risk that
is related with the future. The Australian treasury is the department of Australian government
(Sheedy, et al., 2017). Their main roles of Australian treasury are related to the budget, fiscal
policy, economic stability and regulation of the market.
The department of treasury was developed in January, 1901. The Australian treasury
department has four parts i.e. markets, fiscal, revenue and macroeconomics. The Australian
treasury’s main responsibility is related to these four departments. First is maintaining a sound
macroeconomic environment. The treasury analysis the opportunities and threats in overseas

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and Australia and then on the basis of this analysis it will help in the planning of
macroeconomic policies (Orsmond and Price, 2016). The treasury also takes care of the
foreign investments and make sure that it will not affect the interests of consumers of
Australia. One more responsibility of Treasury is to provide advice on the expenditure by the
government, revenue from taxes and the fiscal policy. Fiscal policy is the policy that is used
to control inflation and government expenditure. The main objective of fiscal policy is to
maintain equilibrium in balance of payments (BOP). Balance of payment is a record of
country’s transactions with rest of the world. Fiscal policy aims at controlling inflation by
attracting exports and reducing imports. Inflation increases in the prices of products year by
year and affects the financial system of the economy. Inflation can be measured in three ways:
1. Consumer Price Index (CPI): CPI compares the prices of commodities in the base year with
current year. It measures retail market prices. 2. Producer price index (PPI): It measures the
change in the selling price received by the producers for their outputs over a period of time. 3.
GDP deflator: GDP deflator is the most commonly used technique to measure inflation. But
RBA and Government do not prefer to use this because it evaluates data on quarterly basis for
the smooth arrangements related to retirement income and taxation, treasury department is
responsible. Reserve bank of Australia (RBA) is the central bank of Australia. The roles of
Reserve bank of Australia include management of the monetary policy, full employment and
making a balance between the incomes and expenses of the country. The Reserve bank act,
1959 gives powers to Reserve bank of Australia. It also manages foreign exchange reserves
and Australia’s gold. Reserve bank is responsible for the management of monetary policy of
Australia. The primary objective of monetary policy is to manage the money supply of an
economy (Lin and Cheng, 2016). Monetary policy tools with RBA are: First is Repo rate and
reverse repo rate: Repo rate is the rate at which clients borrow money from RBI. Reverse repo
rate is the rate at which RBI borrows money from commercial banks. Second is Cash Reserve
Ratio (CRR): CRR is a certain percentage of a bank’s total deposits that is compulsorily
required to be deposited with RBA. Third is Statutory Liquidity Ratio (SLR): SLR refers to
the percentage of bank’s deposits that they are compulsorily required to invest in government
securities. Fourth is Bank rate: Bank rate is the rate charged by RBA on loans and advances to
commercial banks. Fifth is Open market operations: An open market operation refers to the
buying and selling of government securities by RBA (Export.gov, 2017). Government is also
offering concession in excise duty on the goods produced within the country to attract foreign
investors to invest domestically.
Current exchange rates of RBA

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Units of foreign currency per Australian $:
Foreign Currency 13 September,2017 14 September,2017 15 September,2017
Indonesian rupiah 10602 10590 10596
Indian rupee 51.37 51.27 51.28
Japanese yen 88.35 88.39 88.36
New Taiwan dollar 24.11 24.08 24.05
Thai baht 26.56 26.49 26.46
New Zealand dollar 1.1016 1.1036 1.1030
Chinese renminbi 5.2414 5.2360 5.2362
European euro 0.6701 0.6737 0.6712
United States dollar 0.8027 0.8000 0.8001
South Korean won 905.20 906.28 906.15
Hong Kong dollar 6.2697 6.2495 6.2504
Canadian dollar 0.9769 0.9746 0.9735
Singapore dollar 1.0802 1.0807 1.0769
Malaysian ringgit 3.3721 3.3608 3.3544
United Arab Emirates
dirham
2.9479 2.9380 2.9384
UK pound sterling 0.6034 0.6059 0.5966
Papua New Guinea kina 2.5686 2.5600 2.5603
Vietnamese dong 18242 18181 18183
Swiss franc 0.7701 0.7716 0.7709
The Top Ten Australian Banks by Assets
Rank Bank Assets (A$ Millions)
1 Commonwealth Bank of Australia 317,697
2 National Australia Bank Limited 247,782
3 Westpac Banking Corporation 247,386
4 Australia and New Zealand Banking Group Limited 230,031
5 St. George Bank Limited 84,610
6 Bank of Western Australia Ltd 57,065
7 Suncorp-Metway Limited 47,979
8 ING Bank (Australia) Limited 38,852
9 Bendigo and Adelaide Bank Limited 29,378

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10 Bank of Queensland Limited 20,440
The Top Ten Australian Banks by Deposits
Rank Bank Deposits (A$ Millions)
1 Commonwealth Bank of Australia 271,292
2 Westpac Banking Corporation 210,051
3 National Australia Bank Limited 185,241
4 Australia and New Zealand Banking Group Limited 182,032
5 St. George Bank Limited 66,807
6 Bank of Western Australia Ltd 36,945
7 Suncorp-Metway Limited 30,476
8 Bendigo and Adelaide Bank Limited 30,205
9 ING Bank (Australia) Limited 28,700
10 Bank of Queensland Limited 21,762
Future regulation of Australian banks
The shaping of Australian banking system is dependent on six factors i.e. technology,
subdued global economy, consumer behaviour, change in demographics, government and
Asia. The technology is upgrading year by year (van Esterik-Plasmeijer, et al., 2017). So, the
banks will have to update their software from time to time to keep up with the technology in
the future. The consumers are becoming more educated, confident and law abiding. So, these
factors are changing the behaviour of consumers. Consumers do their business online so they
are being able to find the best offer from anywhere in the world. The change in demographics
will affect the business in following ways: the population of Australia is becoming more
diverse, urbanised and richer. So banks are required to deal in more diversified products for
different segments of the consumers. The domestic economy is integrated with other Asian
countries not only in terms of exports but also foreign-direct investment (Cummings and
Wright, 2016). To cope up with Asia, not only economically but socially and culturally and in
terms of currencies, language, the Australian banks are required to behave more
professionally. Inflation is also increasing in the country. Australian economy is required to
minimize its natural resources consumption to remove the tag of biggest resource consumer.
Efficient allocation can only be possible if government can interfere in the market operations

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by making policies for smooth running and by removing policies that creates hurdles in the
operations of an economy. Australian government imposes tariffs on imported goods but
because of this imposition the Australian firms that are profitable are not efficient as
compared to international firms dealing with same product. For the stability of financial
system, the banks of Australia are required to be more connected with the customers in the
future than they have been in the past years (Atoom, et al., 2017). The Australian banking
system still needs guidance in decision-making, risk management and investment. The
Australian banking system is said to be stable when the banking system will be able to make a
balance in the expenses and revenues of the country.
Recommendations
It is recommended that Australian banks must become smaller and simpler but more
connected with customers. Smaller means more focused which means the Australian banking
system is required to be clear about their customers and the products and services used by
these customers (Ward and Forker, 2017). The banking system is required to be differentiated
as per the long-term customers and short-term customers. The banks are required to give full
satisfaction to its customers through its services and products to retain them. Simpler it means
easy to access and relevant. The services of the banking system should be relevant for its
customers. For example: If the Australian banks are using e-banking and customers are not
aware about this facility then this facility is not relevant for the Australian banking system.
The term ‘more connected with customers’ means the banking system is required to
understand its customers and their problems. The problems of customers must be solved
within the given period of time. Customers are important for the stability of banking system.
If banks delay in solving their problems then it will leave bad impact on customers and it
leads to loosing the customers. For the growth of banking sector, Australian banking system is
required to follow these three factors (Alwazir, et al., 2017).
Conclusion
From the above essay it is concluded that the growth of an economy totally depends upon the
regulation of financial institutions. The growth depends upon the planning of expenditure by
the government and the revenues of the country. If the expenditure is more than the revenue
then it means the country is facing financial crises but if the expenditures and revenues are
equal then that is a situation of balance of payments. This essay also contains the top ten
Australian banks by deposits and top ten Australian banks by assets.

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