State Bank of South Australia

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The State Bank of South Australia was a bank owned by the Government of South Australia. Its collapse in 1991 was a major political event in South Australia. The surviving part of the bank now exists as BankSA.

Contents 1 Early history 2 1991 State Bank Collapse 2.1 Causes 3 References 4 External links

[edit] Early history

The bank was formed by the 1984 merger of two other public banks: the Savings Bank of South Australia 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 Society was purchased for $NZ150.0M.^[1]

Questions over the financial viability of the State Bank were first raised prior to the 1989 state election by Opposition Liberal Party member Jennifer Cashmore.^[2]

[edit] 1991 State Bank Collapse

The bank's financial collapse in 1991 was one of the biggest events in the history of South Australia. The State Bank's deposits were legally underwritten by the Government of South Australia, putting South Australia into billions of dollars of debt.^[3]

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 Bannon in 1992, and the crushing electoral defeat of the South Australian Labor 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 ETSA by the Liberal government of John Olsen, despite his election promise in 1997 that privatisation of ETSA would not occur.

The saleable portion of the State Bank was acquired by Advance Bank, 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.

[edit] 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.^[1]

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 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'.^[1]

In March 1991 QC Samuel Jacobs was appointed to head a royal commission 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.^[1]

Chris Kenny, a former journalist, who has worked as advisor to Liberal politicians John Olsen, Rob Kerin and Alexander Downer, and is now chief of staff to Malcolm Turnbull, wrote State of Denial, a book which analysed the State Bank collapse.

[edit] References

[edit] 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