The Australian Financial System is defined by the Reserve Bank of Australia (RBA) as a set of arrangements that cover the lending and borrowing of money and the change of ownership of financial claims. Before 1960 and the creation of the RBA, banks were either savings banks for personal accounts and home loans or trading banks for businesses. Many of them were owned by state governments. During the Great Depression, many banks failed and many were bought by the Commonwealth Bank which was a federal bank.

The History Of The Australian Financial System

In January 1960, the RBA began operating as a central bank while the Commonwealth Banking Corporation had the commercial bank functions. This did not change the tight regulations in place since the end of World War II. The RBA set the interest rates on commercial banks’ term deposits and the maturities they would offer. Savings banks could pay interest on call deposits and became the dominant financial institutions for the people. The aim of the RBA was economic stability for Australians and the first futures market opened trading greasy wool.

By 1970, savings banks offered personal loans without qualitative guidelines, decimal currency was introduced, and the Banks Shareholdings Act 1972 was applied which limited maximum individual shareholdings. In 1971 the Australian dollar and the New Zealand dollar became linked to the United States dollar instead of the Pound Sterling of the United Kingdom.