Australia Yearbook - 2001

Chapter 26—Financial system 907
Regulation framework
One of the clearest differences distinguishing
the financial system in 1901 from that in 2001 is
the degrees of regulation and monitoring that
impact on the environment in which financial
enterprises operate. In 1901 there was no
centralised legislation or institution with
prudential authority over banks or other
financial institution/activity despite the failure of
a number of banks during the 1890s. Nor was
there any Australian institution which
performed the functions of a central bank.
There were a range of different State laws
relating to banks, friendly societies and life
assurance organisations.
Statistical framework
The national accounting framework, which
defines and structures our current presentation
of information on the financial system, did not
exist in 1901, nor did accounting treatments
such as consolidation within financial sector and
subsectors, and standards such as consistent
balance dates for reporting. The absence of
these standards makes the application of the
current framework to the limited data for 1901
difficult. Nevertheless, there were sufficient
statistical data collected to provide a reasonable
quantification of the financial system a
hundred years ago.
The (State) Banking Acts specified that quarterly
statements of assets and liabilities and capital
resources were to be provided. With the
exception of NSW, State legislation governing
life assurance companies required annual
statements showing total business, and
transactions within their own State. In NSW, life
assurance companies were regulated under
either the Companies or Friendly Societies Act,
or were incorporated by special Act.
Financial enterprises
In 1901 enterprises such as banks, pastoral
companies and building societies offered
deposit and lending facilities for housing and
business, while life offices and friendly societies
insured against loss of life, health and property.
Trustee companies managed property in the
event of death until inheritance was settled. A
number of types of institution that exist now
had no counterpart in 1901. There was no
central bank or prudential regulator until the
1930s. Merchant banks and futures exchanges
did not start operating and separately
constituted pension funds were not set up until
the 1950s. Highly specialised vehicles such as
public unit trusts, cash management trusts and
wholesale investment managers had to await an
environment and population that would take
advantage of the facilities they offered.
Trading banks (i.e. banks which offered cheque
accounts and/or issued their own currency in
the form of bank notes) were the largest group
of financial institutions in Australia in 1901.
There were 22 banks operating in Australasia
(i.e. including New Zealand). The four largest
banks at the time accounted for half the total
assets of all banks (£84m). In 1901 these trading
banks operated 1,560 branches, although only
two banks did business in all States and New
Zealand. Trading banks’ assets were estimated
at £122m and were composed of cash reserves
of £19m in coin and £1m in bullion, landed and
other property £6m, notes and bills of other
banks £1m, balances due from other banks £1m,
all other debts due to the banks £94m
(including £1m in ‘London Funds’, Government
and municipal securities of £2m and ‘adjusted
external cash’ of £5m). London Funds were
liquid assets and played a similar role to
deposits with the Reserve Bank in later years,
and ‘adjusted external cash’ took into account
banks’ holdings of their own bank notes.
Trading bank liabilities were estimated at £96m,
consisting of notes in circulation of £3m, bills in
circulation not bearing interest £0.5m, deposits
of £92m (not bearing interest £38m, bearing
interest £54m), and balances due to other banks
£0.4m. Generally banks held assets to the value
of around half their liabilities at call in coin and
bullion.
Savings banks’ liabilities consisted
predominantly of their deposits, estimated at
£33m, from 964,553 depositors. Assets consisted
of a cash reserve of £0.4m, deposits at State
Treasuries £8m, advances £5m, local and
semi-government securities £1m,
Commonwealth and State government
securities £21m. These institutions were
supervised closely by State Governments to
ensure public confidence; the volume of
depositing and withdrawal reflected the role
these institutions played in day to day
requirements of the general population and
small business in a system where cash was the
main means of effecting payments. The State
government savings banks and those with
trustees or commissioners nominated by the
State Government had relationships with the
post offices that allowed depositors access to