The Four Pillars

A little history, Australian banks were tightly regulated with controls over services, banks, exchange rates and foreign bank entry. Then in the 1980’s following The Campbell Inquiry a change took place and deregulation slowly was implemented to help increase efficiency and competition. This means that today the central bank of Australia, The Reserve Bank of Australia (RBA), can make decisions independently of political policy. It is primarily concerned with the stability of the currency and uses monetary policy to achieve inflation targets of 2-3%. It manages short term interest rates and influences cash rates to help stabilize the economy quite successfully. During the beginning of the global economic crisis, inflation in Australia reached a high of 5% in 2008 before falling to a low of 1.3% the following year. By the end of 2011 the consumer price inflation in Australia appeared to have eased to 3.1% after reaching a high of 3.6% during the year, although still on target this allowed the RBA to shift monetary policy and reduce the interest rate to 4.25% to boost the economy and pass the lower rates onto the borrowers. The RBA appears to be acting cautiously as they still have scope to further reduce the interest rate in case the global crisis worsens.

According to McDonald & Marling (2011) and Pais & Stork (2011) Australian banks appear to have escaped the crisis and are in a strong stable position showing resilience to the global downturn. They have remained profitable and maintained their credit ratings. In fact during 2009 Australia’s top 4, known as the ‘pillar’ banks, entered the world’s top 20 safest banks for the first time. This is an encouraging sign to the economy and gives confidence to Australians. The interbank market also appears to have fared well however as the ‘pillar’ banks maintain a strong link to each other but it may only take one failure to lead to a full on crisis!