The privatisation experience in the Australian banking and insurance sectors: an explanation of the change in ownership structures

Abstract

Deregulation has been a feature of the evolution of financial markets in the past two decades. Extending this trend has been the move to privatise government-owned financial institutions. In the 1990s, Australian governments progressively sold publicly owned banks and insurance institutions. One outcome has been that few of these privatised financial firms exist today, having been absorbed in mergers and acquisitions within the financial services sector. This paper uses an information cost framework to explain the experience of privatised banks and insurers. Our approach points to a dynamic process of organisational change that has influenced the outcomes of privatisation in the financial services sector.

Keywords:

• privatisation
• financial markets
• banking and insurance
• deregulation
• information costs
• organisational change

Acknowledgements

The authors are indebted to the anonymous referees of this journal for comments and suggestions on earlier versions of this paper.

Notes

For an examination of the circumstances surrounding the report see Fitzgibbon (2006).

This division was not altered until 1989 when amendments to the Banking Act eliminated the distinction.

The savings bank function of the Commonwealth Bank was given a more formal status when the Commonwealth Savings Bank was created in 1928.

This distinction has a legal basis in the Life Insurance Act 1945 which requires that life insurance assets be held in separate statutory funds to other insurance business and that life insurers be registered.

These were the Bank of New Zealand and the Banque de Nationale de Paris.

An example of this is the growth of mortgage companies focusing on the provision of housing finance to individuals and households.

Camilleri (1986) provides the data upon which these proportions are derived.

The Pyramid Building Society collapsed in June 1990.

The State Bank of South Australia was formed in 1984 after the merger of the Savings Bank of South Australia and the State Bank of South Australia. The original State Bank had been formed in 1896.

The State Bank of Victoria was not included in this table as it was acquired by the Commonwealth Bank prior to the sale of the latter.

Colonial was formed with the demutualisation of the Colonial Mutual Life Assurance Society in 1996. The Advance Bank was the product of the demutualisation of the NSW Permanent Building Society in 1985.