The
State Bank of South Australia was a
bankA bank is a financial institution licensed by a government. Its primary activities include borrowing and lending money.Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds...
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....
. Its collapse in 1991 was a major political event in South Australia. The surviving part of the bank now exists as BankSA.
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 $AU60.0M.
The
State Bank of South Australia was a
bankA bank is a financial institution licensed by a government. Its primary activities include borrowing and lending money.Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds...
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....
. 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 $AU60.0M. 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 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 details from the first human activity in the region, estimated at about 20 000 years ago to the current events of the 21st century.-Aboriginal settlement :...
. 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 was the Labor Premier of South Australia between 10 November 1982 and 4 September 1992.-Early Life:Bannon was born in Bendigo, Victoria and completed degrees in Arts and Law at the University of Adelaide. While at university, he was co-editor of the student newspaper On Dit...
in 1992, and the crushing electoral defeat of the South Australian
LaborThe Australian Labor Party is an Australian political party.Known as the ALP for short, the party is the current governing party of Australia, since the 2007 federal election...
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. Its controversial privatisation in 1999 was one of the most important political events in recent South Australian history.-Establishment of ETSA:The Electricity...
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 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.John Olsen was a member of the Liberal Party and Member of Parliament for more than 20 years. His political career was marked by a bitter rivalry with Dean Brown, the two representing the conservative...
, 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 banks poor financial position it 'a contributing cause of the institution's financial failure' was the failure by the bank to adequately to 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 states that are Commonwealth Realms a Royal Commission is a major government public inquiry into an issue. They have been held in states such as the United Kingdom, Canada, Australia, 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.
Chris KennyChris Kenny is a journalist, author and former political adviser from South Australia.He has previously been employed as a political reporter for Adelaide's Channel 10, before moving on and acting as Alexander Downer's Chief of Staff while Downer was Minister for Foreign Affairs...
, 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 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.John Olsen was a member of the Liberal Party and Member of Parliament for more than 20 years. His political career was marked by a bitter rivalry with Dean Brown, the two representing the conservative...
,
Rob KerinRobert Gerard Kerin was the Liberal Premier of South Australia between 22 October 2001 until 5 March 2002.Born to parents Maurice and Molly Kerin in Crystal Brook, Kerin attended the Adelaide Catholic secondary school, Sacred Heart College Senior. He was elected to parliament in 1993 as the member...
and
Alexander DownerAlexander John Gosse Downer is an Australian former Liberal 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, the current Leader of the Opposition in the Australian Parliament, and parliamentary leader of the Liberal Party, succeeding Brendan Nelson on 16 September 2008....
, wrote
State of Denial, a book which analysed the State Bank collapse.
External links
Report of the Auditor-General on an Investigation into The State Bank of South Australia - Full text of Auditor General's report, 1993