The
State Bank of South Australia was a
bankA bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
owned by the
GovernmentThe form of the Government of South Australia is prescribed in its constitution, which dates from 1856, although it has been amended many times since then...
of
South AustraliaSouth Australia is a state of Australia in the southern central part of the country. It covers some of the most arid parts of the continent; with a total land area of , it is the fourth largest of Australia's six states and two territories.South Australia shares borders with all of the mainland...
. Its collapse in 1991 was a major political event in South Australia. The surviving part of the bank now exists as BankSA.
Early history
The bank was formed by the 1984 merger of two other public banks: the
Savings Bank of South AustraliaThe Savings Bank of South Australia was founded in 1848, trading from a single room in Gawler Place, Adelaide. In 1984 it merged with the State Bank of South Australia, with the merged entity taking the latter name...
and the State Bank of South Australia.
In March 1988 the Bank purchased the life insurance and managed funds business Oceanic Capital Corporation for A$60.0M. In June 1990, the
United Building SocietyUnited Building Society was a New Zealand building society, and later a registered retail bank known as United Banking Group.United Building Society merged or purchased the operations of a number of smaller building societies including:...
was purchased for $NZ150.0M.
Questions over the financial viability of the State Bank were first raised prior to the
1989 state electionState elections were held in Australia on November 25, 1989. All 47 seats in the South Australian House of Assembly were up for election. The incumbent Australian Labor Party led by Premier of South Australia John Bannon defeated the Liberal Party of Australia led by Leader of the Opposition John...
by Opposition
Liberal PartyThe Liberal Party of Australia is an Australian political party.Founded a year after the 1943 federal election to replace the United Australia Party, the centre-right Liberal Party typically competes with the centre-left Australian Labor Party for political office...
member
Jennifer CashmoreJennifer Lilian Adamson-Cashmore is a former Australian politician. She was a Liberal Party member of the South Australian House of Assembly between 1977 and 1993, representing the eastern suburbs seat of Coles ....
.
1991 State Bank Collapse
The bank's financial collapse in 1991 was one of the biggest events in the
history of South AustraliaThe history of South Australia refers to the history of the Australian State of South Australia and its preceding Indigenous and British colonial societies. Aboriginal Australians have lived in South Australia for tens of thousands of years, while British colonists arrived in the 19th century to...
. The State Bank's deposits were legally underwritten by the
Government of South AustraliaThe form of the Government of South Australia is prescribed in its constitution, which dates from 1856, although it has been amended many times since then...
, putting South Australia into billions of dollars of debt.
SA State Bank managing director Tim Marcus Clarke ultimately took most legal responsibility for the Bank's downfall. Politically, it caused the resignation of premier
John BannonJohn Charles Bannon AO is a former Australian politician. He was the 39th Premier of South Australia, leading the Labor Party to government at the 1982 election. The Bannon Labor government was re-elected at the 1985 election and the 1989 election...
in 1992, and the crushing electoral defeat of the South Australian
LaborThe Australian Labor Party is an Australian political party. It has been the governing party of the Commonwealth of Australia since the 2007 federal election. Julia Gillard is the party's federal parliamentary leader and Prime Minister of Australia...
government at the 1993 election.
The State Bank collapse has continued to affect South Australian finances and politics well into the next century. The State Bank debt was given as the main reason for the privatisation of
ETSAThe Electricity Trust of South Australia was the South Australian Government-owned monopoly vertically integrated electricity provider...
by the
LiberalThe Liberal Party of Australia is an Australian political party.Founded a year after the 1943 federal election to replace the United Australia Party, the centre-right Liberal Party typically competes with the centre-left Australian Labor Party for political office...
government of
John OlsenJohn Wayne Olsen, AO was Premier of South Australia between 28 November 1996 and 22 October 2001.-Parliament:Olsen was a member of the Liberal Party and Member of Parliament for more than 20 years...
, despite his election promise in 1997 that privatisation of ETSA would not occur.
The saleable portion of the State Bank was acquired by
Advance BankThe Advance Bank was an Australian bank that existed as a bank from 1985 until 1997, when it merged with St George Bank.It started as the NSW Building Society. It was demutualised in 1985 & became known as the Advance Bank. In 1995 it acquired the State Bank of South Australia, changing its name to...
, which was itself bought by St George Bank. The Bank of South Australia (also known as BankSA) is now a division and a trading name of St George Bank. St George Bank merged with Westpac Bank effective 1 December 2008.
Causes
In March 1991 the Auditor General of South Australia was appointed to conduct an inquiry to determine the causes of the State Bank's need for Government support. The report, delivered in 1993 found the key cause of financial distress was the non-performing assets of the Bank, that is its loan portfolio. These non-performing assets were corporate and property-related loans made by the Bank. The report found that 'to a lesser extent', its investments in major subsidiaries acquired between 1985 and 1990 also performed poorly and were also a contributory cause.
The Auditor General did however make it clear that while these external factors were causes of the bank's poor financial position, 'a contributing cause of the institution's financial failure' was the failure by the bank to adequately manage the debt, capital, interest rate risk and
liquidity riskIn finance, liquidity risk is the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss .-Types of Liquidity Risk:...
of the bank. The report indicated that this was because 'policy and procedural inadequacies, and the lack of effective supervision and control of certain of the Bank's activities, contribute to the mismanagement of the business of the Bank as a whole'.
In March 1991 QC Samuel Jacobs was appointed to head a
royal commissionIn Commonwealth realms and other monarchies a Royal Commission is a major ad-hoc formal public inquiry into a defined issue. They have been held in various countries such as the United Kingdom, Australia, Canada, New Zealand, and Saudi Arabia...
to investigate the relationship between the Bank and the South Australian Government, and the arrangements under the Bank of South Australia Act for the governance of the Bank.
Bannon remained as Premier during three inquiries, the last two of which cleared him of any deliberate wrongdoing.
Chris KennyChris Kenny is a journalist, author and former political adviser from South Australia.He won the National Tree Program Media Award in 1985 working for The Murray Pioneer in Renmark, before going on to work for the now defunct The News in Adelaide...
, a former journalist, who has worked as advisor to
LiberalThe Liberal Party of Australia is an Australian political party.Founded a year after the 1943 federal election to replace the United Australia Party, the centre-right Liberal Party typically competes with the centre-left Australian Labor Party for political office...
politicians
John OlsenJohn Wayne Olsen, AO was Premier of South Australia between 28 November 1996 and 22 October 2001.-Parliament:Olsen was a member of the Liberal Party and Member of Parliament for more than 20 years...
,
Rob KerinRobert Gerard Kerin was the Liberal Premier of South Australia from 22 October 2001 to 5 March 2002. He also served as Deputy Premier of South Australia to John Olsen from 7 July 1998 until he became premier upon Olsen's resignation....
and
Alexander DownerAlexander John Gosse Downer is a former Australian Liberal Party politician who was Foreign Minister of Australia from March 1996 to December 2007, the longest-serving in Australian history...
, and is now chief of staff to
Malcolm TurnbullMalcolm Bligh Turnbull is an Australian politician. He has been a member of the Australian House of Representatives since 2004, and was Leader of the Opposition and parliamentary leader of the Liberal Party from 16 September 2008 to 1 December 2009.Turnbull has represented the Division...
, wrote
State of Denial, a book which analysed the State Bank collapse.
External links