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The deep history of Australian banking shows that some hard lessons were learned along the way to Australia's currently very stable and safe banking system.
Banking began in Australia with the opening of the bank of NSW in 1817. This was the first Australian bank, but more were soon to follow. These banks were issued rights to banking by charter or through the private companies act. Some were Australian owned and managed, but many more were English owned with headquarters based in London.
These banks were virtually unregulated, and were free to print and distribute money in addition to the other banking services they provided. This period of un-regulation continued for many years and led to one of the biggest banking crashes in the history of the world.
The bank crash of the 1890s
In the years leading up to the banking crash there was a huge influx of British capital flowing into the commonwealth, and land speculation and credit were rampant. The banks were unregulated, and operated fast and loose in the attempts to maximize profits in the period of frenzied investment. The collapse occurred first in Melbourne. Many of the borrowers to these easy to acquire loans had defaulted, and some of the more extreme fringe banks soon ran out of available money for savings account holders who wanted to withdraw their money. The rumor of bank collapse caught wind, and all of Melbourne, and indeed Australia tried to quickly empty their accounts. A huge number of banks quickly ran out of money, and were forced to barricade their doors against the angry mobs of banking customers.
Legislation enacted eventually allowed most customers to access their investments. Bank investors were mandated to supply an influx of fresh capital, and borrowers were required to maintain their accounts under long term lending agreements. Many people could not get their money out for a period of years, and some people waited until 1914, before finally getting access to their savings.
Although this enacted legislation did restore order to the banking situation, trust in the banks fell to an all time low, and it took decades for deposited amounts to return to pre crash levels.
Investigations into the causes of the crash revealed many financial irregularities perpetrated by banking officers and other leading figures. These leading figures for the most part escaped prosecution for their dishonest practices.
Australians suffered a severe depression in the 1930's, and in some areas unemployment rose as high as 33%. Many advisors had been urging for a strong centralised banking response to the crisis, and hoped that an influx of capital from the banks could get the country out of the grips of the severe depression. The banks maintained that deflation, and a period of strict economic measures was the correct way forward, and many people suffered as a result.
Following this period, there was an increased call for a stronger centralised banking system and by the mid 40 the banks had new masters in the form of civil servants from Canberra.
Recent banking crisis were also only nearly averted in the 1980's. This period of foreign banking deregulation and inflation had many banks returning to the free and easy credit ways that had caused so many problems almost a century before. Thankfully, in this decade, banking regulators and other advisory figures stepped into the banking environment, and were able to avert a possible catastrophe through prudent management and regulation.
Today, Australian banks are ranked as some of the safest and most stable banks in the world. Australians can have great confidence in their banking system. The bankers have learned a few hard lessons along the way, and government regulation and management now controls the environment to ensure that another period of banking instability can never occur.
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