The CBA's central banking powers were transferred to the Reserve Bank of Australia when the RBA was created in 1959. In this era, banking was tightly controlled, but safe. As the post-war boom of the 1950s developed, the banks began chafing under these restrictions. Finance companies were growing quickly, untrammelled by central banking controls and able to lend on anything from domestic appliances to cars, houses and companies.

The banks formed finance companies or invested in them and became players in this rapidly expanding market. The finance companies began lending to the corporate cowboys of the era. FCA, an offshoot of the Bank of Adelaide, financed Alan Bond's first property speculation in 1960.

A whole fringe banking system began to emerge. The licenced banks were still controlled, but finance companies, merchant banks, foreign banks and (to a large degree) state banks were not subject to RBA supervision.

There was a natural affinity between these fringe bankers and the plethora of corporate cowboys and speculators who grew up in the 1970s and 1980s. A speculator who is hoping to make 100% on his deal is not too fussy about whether his financier is lending to him at 10% or 20% and will cheerfully pay a fee as well.

The speculators generated huge profits for the financiers (including the banks) but sometimes the profits were only paper. The interest and fees would be capitalised as part of the loan to the speculator and sometimes the speculator would collapse and the loan would never be repaid. It could take a decade for the loss to be realised and by that time the banker who made the original loan - and earned a commission and promotion on the deal - may well have retired.

Banks and especially fringe banks were making increasingly unsound loans, for two reasons. The first was high profits which could be reported (but not always collected) from high risk business. The second was competition to get or maintain market share.

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.
 
Deregulation Era (1983- ) 

Between 1983 and 1985 Treasurer Paul Keating deregulated the system by -

(a)         floating the Australian dollar in December 1983;

(b)         granting 40 new foreign exchange licences in June 1984; and

(c)         granting 16 banking licences to 16 foreign banks in February 1985.

This accelerated lending competition further. Banks competed with by reducing the security they required and lowering their rates. Crazy loans were made to corporate cowboys.

After the cowboys collapsed the banks were left counting their losses, which ran to tens of billions. A new wave of managers took over and the banks rebalanced their balance sheets by charging stiff rates to their good customers to make good the losses on their bad customers. Australia's four big banks today have been burned by the 1980s and learned the lessons. How long they remember the lessons is another question.