Australian Banking System

The Australian financial system is regulated by the Australian Prudential Regulation Authority (APRA), which oversees "authorised deposit-taking institutions" such as banks, building societies and credit unions. It also regulates insurance companies and "superannuation," or pension, funds.^[1]

APRA was created by the Australian government on 1 July 1998. The agency is tasked with "maintaining the safety and soundness of financial institutions, so that the community can have confidence that they will meet their financial commitments under all reasonable circumstances," according to its website. It works closely with the Treasury; the Reserve Bank of Australia, the country's central bank; and the Australian Securities and Investments Commission, which oversees the investment industry.^[1]

As of March 2020, there were 97 banks in Australia, including 42 domestic banks, led by the "Big Four," which dominate the industry. There were also seven foreign subsidiary banks and 48 branches of foreign banks. There were also 42 credit unions and building societies. As of 31 March 2020, these authorised deposit-taking institutions (ADIs) had total assets of A$5.6 trillion, which was up 16.1% from a year earlier.

The "Big Four"

Australia is dominated by four big banks, which also have sizable market shares in New Zealand. They also do business in other foreign countries.

Commonwealth Bank

Commonwealth Bank of Australia (CBA) is the largest bank in Australia in terms of assets, deposits and market capitalisation.^[3] Based in Sydney, it was founded in 1911 and began operations the following year.^[4]

Westpac Banking Corp

Westpac is the second largest bank in the country as well as its oldest bank, dating back to 1817, when it was created as the Bank of New South Wales. In fact, that makes it the oldest company of any kind in Australia. It changed its name to Westpac Banking Corp. in October 1982 following the acquisition of Commercial Bank of Australia. It's also based in Sydney.^[5]

National Australia Bank

National Australia Bank (NAB) is the country's third largest bank and its largest business bank. Based in Docklands, it was founded in 1834.^[6]

ANZ Banking Group Limited

Melbourne-based ANZ is the country's fourth largest bank.^[7] It was created in 1835 as the Bank of Australasia.^[7]

In addition to the Big Four, there are a number of smaller retail banks, including Adelaide Bank, Bank of Queensland, Bank of Melbourne and St George Bank.^[8]

Big Four Scandals

Each of the "Big Four" banks has been the subject of a major government probe into misbehaviour resulting from their oligopoly, ranging from "fees charged to the accounts of dead people" to overcharging live customers to money laundering. The investigation also faulted regulators for being too lenient in their oversight of the banks and recommended changes in how the banks are regulated. The four banks set aside a combined A$8 billion (US$5.4 billion) to cover penalties and to refund customers.^[9]

In the "country's biggest ever such scandal," according to Reuters, in November 2019 Westpac was charged by regulators with 23 million alleged breaches of the country's anti-money laundering laws, including facilitating payments to child exploiters. The bank's CEO and compliance chief were forced to resign and its chairman retired.^[9]

In 2018 CBA agreed to pay A$700 million (US$529.27 million), the country's "biggest-ever corporate fine," to settle charges of money laundering control lapses. The bank also agreed to compensate 41,000 current and former employees for underpaying them, while its life insurance division was convicted in November 2019 of 87 counts of making illegal unsolicited sales calls.^[9]

ANZ, meanwhile, agreed to refund 3.4 million customers for wrongly charging fees, while NAB was accused by the country's securities regulator for charging financial advisory customers "fees for no service."^[9]

Financial Soundness

Despite these scandals, the Big Four banks appear to be financially sound. According to Global Finance magazine's annual listing of the world's safest banks based on their credit ratings, all four rank in the top 40, with ANZ and CBA ranked 29 and 30, respectively, followed by Westpac at 32 and NAB at 34. All four are rated AA-minus by Fitch, Aa3 by Moody's and AA-minus by Standard & Poor's.^[10]

Summary

Australia's financial system is dominated by four large banks and regulated by APRA, which also regulates insurance companies and pension funds. While all of the "Big Four" banks appear to be financially strong, they also have been accused by the government of abusing their oligopolistic power, with each of them embroiled in scandals over the past few years ranging from overcharging customers to money laundering.