Defined Terms and Documents       

Non Bank Financial Institutions or NBFIs

"In the 1970s and 1980s non-bank financial institutions ("NBFIs") were much more prevalent than now.  Building societies especially were much stronger forces.  At that time the number of home loans held by banks compared with building societies was about 3 to 1.  Now it is about 50 to 1.

"From the 1970s, the financial system began suffering serious tremors. The Mineral Securities collapse of 1971 sparked the most serious money panic in Australia since 1893.  In 1974 Mainline and Cambridge Credit collapsed.  In 1977 there were panic runs on building societies in South Australia and Queensland and two bank-owned finance companies had to be rescued by their parent banks.  In 1979 Associated Securities collapsed and FCA got the Bank of Adelaide into so much trouble it had to be taken over by ANZ."

Below is an extract from RBA has done naught to require Credit Card Issuers to lower interest rates in line with the fall in the Cash Rate:   

Summary of Part Two: Key Issues in Regulatory Reform from The Wallis Report on the Australian Financial System: Summary and Critique which 'sugar coats' the reasons:

"Tight control of the banking system in the post-World War Two era encouraged the growth of non-bank financial institutions (NBFIs). Life companies were actively engaged in mortgage lending to satisfy demand unmet by banks. Building societies and credit unions also expanded. Merchant banks developed to satisfy unmet demand for corporate borrowing. The banks themselves established subsidiary finance companies to overcome the strict regulation of their own lending and borrowing activities.

By the late 1970s pressure for regulatory reform was mounting through a combination of inflation, exogenous shocks and the declining effectiveness of a monetary policy system which was reliant upon control of banks' balance sheets, despite the importance of NBFIs in the financial system. It was in this context that the Campbell Committee was established in 1979; it issued its report in 1981. Its recommendations were targeted at both improving the efficiency of macroeconomic management and at the abolition of direct interest rate and portfolio controls on financial institutions. Although the Campbell Committee was concerned to remove barriers to entry to the financial system, its recommendations also included strengthened prudential measures to preserve system stability."

Below are extracts from Eligible Plaintiffs seek Compensatory Damages from the RBA:

"Below is an extract from 'Overview of Financial Services Post-Deregulation' by (Dr) Diana Beal, Director, Centre for Australian Financial Institutions, University of Southern Queensland, Toowoomba:

"Interest-rate ceilings on deposit accounts restricted the banks’ ability to attract funds particularly during the 1970s when inflation was rampant.  In the June quarter of 1975, inflation rose to 16.9% pa. At the same time, interest payable on amounts held in savings accounts offered by savings banks, for example, was restricted to 3.75% (by RBA regulation) from 1969 to 1980 (Foster, 1996).  In contrast, the interest rates offered by non-bank financial institutions (NBFIs) were not controlled and they were able to pay around 10% on passbook accounts."

"Banks in 1980 still operated in a highly regulated environment which was an artefact of previous economic and social conditions. Indeed, an extensive collection of controls remained from regulation introduced under the National Security Regulations in 1941."

By regulation, the RBA fixed the maximum interest rate that Australian banks could pay on passbook savings account at 3.75% from 1969 until 1980**.

**    The Campbell Committee was established in 1979 and reported in 1981.  The recommendations of the inquiry were targeted at ..... the abolition of direct interest rate and portfolio controls on financial institutions.

Between 1960 and 1980 the RBA took a pro-active role in regulating commercial bank interest rates.  The purpose of regulation (until 1980) was "......... to achieve monetary policy, public sector financing and sectoral assistance objectives.....". 

Interest rate ceilings on trading bank and savings bank deposits were dismantled from 1980; some limits on minimum and maximum terms on fixed deposits remained.

"Prior to 1985 the maximum interest rate that could be charged on credit cards had been set at 18% per annum by the Reserve Bank of Australia.  In April 1985, this rate was deregulated." (bottom of page 7)

Below is a quotation from Westpac's submission to the Wallis Inquiry, submitted by former CEO, Bob Joss.  The Writer's investigations suggest that the Wallis Inquiry did not adopt Westpac's prudent recommendation in either its Discussion Paper - Released Nov 1996.  Or its Final Report - Released March 1997):            

    "Also relevant is the Inquiry’s concern with fairness, or the equitable treatment of the various users of the financial system."

    On-going monitoring of credit card pricing in anticipation of a substantial inquiry into the effects on consumers of the deregulation of credit card interest rates"

The RBA has seemingly ignored then Westpac CEO, Bob Joss' above recommendation to the Wallis Inquiry for On-going monitoring of credit card pricing in anticipation of a substantial inquiry into the effects on consumers of the deregulation of credit card interest rates".

For a full account of the historical background to deregulation and the deregulatory measures which were implemented during the 1980s see A Pocket full of Change, Banking and Deregulation, House of Representatives Standing Committee on Finance and Public Administration, November 1991, chapter 2; and Fast Money 3, the Financial Markets in Australia , Edna Carew page 1 - 30."