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Australian banking has an extended history and it dates back to 1817.
The Australian banking history can broadly be divided into four parts
namely Private Banks, the Commonwealth Bank, the Reserve Bank and
deregulation. The banking system of Australia has evolved a lot and we
can find out the emergence of Australian Banking system as it works now.
Private Banks
This era started when Governor Macquarie, who was disgusted by the
unsystematic running of the economy gave orders to the citizens to start
a bank in Australia. Thus, the Bank of New South Wales was formed in
1817. This era can be roughly calculated to prevail between 1817 and
1911.
The then only bank issued bank notes to maintain a sound currency
system. But, it soon had rivals and other banks started cropping up
giving rise to a private banking system in Australia. Each bank stated
issuing notes and they did that on the basis of there own assets. There
was no Central bank to control the working and every bank survived on
its own terms.
The banks started expanding their balance sheets by issuing notes when
it came for them to honour the notes they were taken aback and came to
the verge of closing down or even closed down its operation. Banks
started closing down one after the other but the real blow was when 12
banks which accounted for two-thirds of Australia’s wealth closed down
within six weeks.
Need for Central Banking
After the clash of majority of the banks, which resulted from the
lack of cooperation between them, the need for a central bank was felt.
None of the banks possessed qualities to be transformed to a commercial
bank. The depositories lost faith in the commercial banks and wanted to
withdraw their gold.
This era prevailed from 1880-1901. During this period as the banks were
not organised and each bank issued bank notes the government operated
with each of them. Every single bank was a replica of the other. No one
stood out to be different.
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