The original Commonwealth Bank of Australia was established as a government-owned commercial bank by the Commonwealth Bank Act 1911, which was assented to on the 22 December 1911, with the Bank opening for business on the 15 July 1912. Over subsequent decades it progressively acquired more of the responsibilities expected of a central bank, including loan raising for the government, note issue, economic policy, exchange rate monitoring and exchange control. As its central banking functions expanded while still being a commercial bank, other commercial banks saw this as an unfair advantage, arguing that the Commonwealth Bank was becoming both a regulator and competitor. Increasingly, there were calls for the government to separate the commercial and central bank functions into distinct entities.

While the major political parties, prominent citizens and the newspapers of the day variously supported and then dismissed separating the functions of the Commonwealth Bank, public sentiment and pressure from other banks became harder to ignore.¹

Liberal Party leader Robert Menzies had been a prominent opponent of separate banks but was persuaded to change his mind by the unease of the commercial banks. Under his Prime Ministership, the Commonwealth Banks Act 1959 was passed.² This Act, allowed for the creation of a new bank, called the Commonwealth Banking Corporation, which would be a commercial bank only. The central bank functions of the Commonwealth Bank remained, with the Bank renamed the Reserve Bank of Australia. Both banks opened on 14 January 1960.

The creation of the original Commonwealth Bank

The depression of the 1890s wrought havoc on the banking system in Australia. Many private banks failed, and the public and business losses saw confidence in the banking system reach all-time lows. As early as 1893, the idea of an Australian central bank, that could prevent or control the turmoil of a depression, was publicly discussed. Over the next few years, the calls for a central bank grew louder but would only become possible with the federation of the Australian states in 1901.

One of the most vocal supporters for a central bank was the Labor parliamentarian, King O’Malley. In 1905 and again in 1908, he advocated in parliament for a bank like the Bank of England; at the time a private bank, regulated by the government that could advise on economic matters, and with control over Britain’s currency. While many were persuaded by O’Malley’s arguments, when the Commonwealth Bank of Australia (hereafter Bank) was eventually legislated for in 1911 by Labor Prime Minister Andrew Fisher, it was as a commercial bank only, with no defined central banking or regulatory powers. Its main purpose was to provide more favourable terms for the public regarding fees and interest on accounts.

The early years of the Commonwealth Bank

In 1914, two years after the Bank was established under the management of its first governor Denison Miller, Britain was at war with Germany. For Australia, this brought with it the need to raise substantial funds for the war effort. As the Commonwealth’s bank, the Bank played an increasing role in the raising of loans. After the war, the Bank raised money for peace time activities and economic stimulus, including through returned soldier schemes, food security and infrastructure building. National emergency gave the bank enhanced importance, including through financial policy.

In 1920 the responsibility for the note issue passed from the Commonwealth Treasury to a new Australian Notes Board, which was chaired by the Governor of the Bank and administered by it. In 1924 the Notes Board was abolished and the responsibility for the issue of Australia’s currency notes was officially transferred to the Bank, formalising what was regarded as a central bank function. In the same year, a board of directors was created to manage the Bank. Prior to this, sole management of the Bank was vested in the Governor, Denison Miller.

During the 1920s and 1930s, many attempts were made to create a stand-alone central bank. The Commonwealth Bank (Savings Bank) Act 1927 established a commonwealth savings bank with its own legal status but administered by the Bank. This separation, while not a complete break from the Bank, did foreshadow the eventual separation of the commercial and central banking functions that would come later.

Legislation to create a central reserve bank for Australia was introduced to the Parliament in May 1930, by Labor Party Treasurer EG Theodore, to transfer central banking powers from the Bank to a new central bank. The legislation failed to pass both houses, due in part to there being no real agreement as to the precise role a central bank in Australia should play, but raising it brought the issue back into the public domain.

The Great Depression of the 1930s, which was a severe worldwide economic downturn, required the Bank to work closely with the government, and commercial banks. The Bank took the lead in establishing policies that would benefit the financial sector and advising the government accordingly, and in consulting with the commercial banks regarding ways to support the business community.

The beginnings of the economic downturn that led to the Great Depression coincided with the appointment in March 1931 of the Bank’s first economist, Leslie Melville. His appointment saw the Bank become an increasingly important player in economic policy, including on the world stage, and as the government’s representative at conferences and economic meetings, including Bretton Woods and the IMF. Leslie Melville later regarded this as the start of central banking in Australia, as it represented the official recognition of the Bank’s role in shaping the government’s views regarding banking and the economy.³

The declaration of war in 1939, at the end of the Great Depression, saw the Bank once again providing support for wartime and peacetime economic and financial stimulus, through loan raising for the government and funding for post war reconstruction, and in discussions with its central bank counterparts and governments overseas.

The 1940s and the Second World War

The Bank’s role in the First World War had funded military spending and resettlement via the raising of money through war and peace loans, included for retraining and housing schemes for returned servicemen. This role was formalised at the end of the Second World War, with the central banking roles and functions that the Bank had assumed over previous decades now recognised in legislation.

The Commonwealth Bank Act 1945 and the Banking Act 1945 replaced the Board with a six-member council consisting of Bank and Treasury officials. The Acts additionally formalised the Bank's administrative powers of monetary and banking policy, and exchange control (with government-imposed limitations on the purchase and/or sale of currencies). Both Acts were important in recognising the role the Bank now played in government policy and financial controls.

The changing face of banking in the 1950s

Legislation in 1951 replaced the six-person advisory council created in 1945, with a ten-member board, which included the Governor, Deputy Governor, and the Secretary to the Treasury. In 1953 the Commonwealth Trading Bank was created and given separate legal status, although still under the Commonwealth Bank. The Commonwealth Savings Bank had been given similar status in 1927. This left the remaining entity – the Commonwealth Bank – effectively as the nation’s central bank.

In December 1957, a number of changes were made to the administrative structure of the Bank. Two new departments were created – the Banking Department and the Central Bank Accounts Department. The Banking Department was made responsible for foreign exchange, supervision of trading and savings banks (the latter in conjunction with the Investment Department), credit policy, Exchange Settlement accounts and Treasury bill transactions with banks. The Central Bank Accounts Department took over all government accounts and central bank advances, except those to banks. Control of the note circulation was transferred to the Investment Department.

The 1950s also saw the creation of the Trading Bank's Foreign Division, which saw it expand into international markets, including the Asian market.  

The Reserve Bank Act 1959 was passed by the Menzies government in 1959. This legislation, along with legislation passed in 1953 and 1957, formally separated the commercial activities of the Bank from the central banking functions, as detailed in the Commonwealth Banks Act 1959. The Commonwealth Bank would be renamed the Reserve Bank of Australia and would function as the nation’s central bank. The newly created Commonwealth Banking Corporation would operate as a commercial bank.

As the Governor of the Commonwealth Bank until separation, the government had given Dr Coombs the responsibility for the smooth and efficient transfer of the commercial banking activities to a new corporation, and central banking functions to the Reserve Bank. Menzies held Coombs in high regard, and he was his first choice for the governorship of the Reserve Bank.

As well as the more formal undertakings relating to legal and legislative controls, the need to delegate staff to distinct roles was a massive undertaking, and required consideration of their specialisations, skills, and knowledge, and whether they would be more suited to the commercial or central banking functions. Over 1,800 men and women remained with or were recruited to the Reserve Bank in 1960, with the residual staff transferred to the Commonwealth Banking Corporation. Throughout this process, Dr Coombs was called on to consult with the commercial banks about the changes being made. Despite the campaigning by the commercial banks over many years, there was some disquiet and uncertainty as the time grew closer, including how the system would work.

In the end, and with little fuss, the Reserve Bank of Australia and the Commonwealth Banking Corporation commenced their separate operations on 14 January 1960.

Separation

On 14 January 1960, the Reserve Bank of Australia commenced operations as Australia’s central bank and the successor in law to the Bank established in 1911 as the Commonwealth Bank of Australia.

The next day, the Governor of the Reserve Bank, Dr HC Coombs, wrote to the Treasurer, Harold Holt, to inform him that the task of transferring to the Corporation the trading, savings and development parts of the Commonwealth Bank had been completed and the new organisations, both commercial and reserve, had commenced operations effectively and smoothly. Dr Coombs added that he believed ‘…the banks which will now be embraced within the Corporation are being taken over in strong and excellent condition.' ⁴

In reply, the Treasurer remarked that the occasion of the historic re-organisation of the Commonwealth banking structure should not pass without a tribute to the part Dr Coombs personally played. ‘The fact that these major changes have been brought into operation without discernible internal or public dislocation is testimony both to your administrative skill and the quality of your leadership. I am very conscious that this big job owes much to what you have contributed and to the loyalty you have evoked from your staff in all the banking sections. I am confident that our new banking system will serve Australia well and continue to command an honoured place in our history and promote our national development.’ ⁵ 

In the December 1959 issue of Bank Notes, the Commonwealth Bank’s staff magazine, Coombs penned a moving tribute to the staff of the Bank: ‘The New Year will usher in a further phase in the history of the Commonwealth group of banking institutions. I know that the staff, who have contributed largely to the unparalleled growth of the Commonwealth Bank in Australian banking, will carry their efficiency and enthusiasm into the task of developing the Reserve Bank and the Commonwealth Banking Corporation and its associated banks as great national institutions of which we can all be proud.’ ⁶ 

The Reserve Bank Board, chaired by the Governor of the Reserve Bank, was given responsibility under the Reserve Bank Act 1959 for conducting monetary and banking policy to best contribute to the stability of the currency; maintenance of full employment; and the economic prosperity and welfare of the people of Australia (collectively referred to as the Reserve Bank’s Charter). These responsibilities had originally been introduced in 1945 for the Commonwealth Bank.

The Bank’s first Governor was Dr HC Coombs, who had been the Governor of the Commonwealth Bank up until separation. EB Richardson, who had been Deputy Governor, became the Managing Director of the Commonwealth Banking Corporation (in 1991 rebranded as the Commonwealth Bank of Australia), which had responsibility for the Commonwealth Savings Bank, Commonwealth Trading Bank, and the Commonwealth Development Bank, with the Devlopment Bank taking over the assets and liabilities of the Mortgage Bank and Industrial Finance departments of the former Commonwealth Bank of Australia. 

The fundamental reason for the change was that central banking decisions were so crucial to the prosperity of the nation that they needed to be made by impartial experts and separated as much as possible from any political or commercial vested interests. Separation eliminated any potential bias of a Commonwealth bank that acted as both a regulator and a competitor to the private banks. The creation of the new Commonwealth Banking Corporation meant that the central bank had no commercial activities associated with it.

The Reserve Bank was created in the post war period, when Australia’s economy was strong. For the newly created Reserve Bank and its Governor, the decade of the 1960s was tremendously significant in creating an international image for the Australian economy and the Bank.

The Reserve Bank Act 1959 required both an intellectual and physical separation of the central and commercial banks, but with a presence throughout Australia to connect it to the Australian people that it served. Dr Coombs was influential in determining RBA buildings would be constructed in each of the State capitals and in the ACT (Canberra) and the Northern Territory (Darwin), to maintain a prominent identity. In addition, he opened offices in Launceston (in addition to Hobart, with Tasmania the only State to have two RBA buildings), Port Moresby, New York, and London. In complete contrast to the Commonwealth Bank’s Head Office in Pitt Street, the buildings were designed in the International Modernist style, with openness and transparency reflected in the floor to ceiling windows.

The Bank moved into its new Head Office at 65 Martin Place on 16 January 1965, 5 years on from when the original separation had occurred (January 1960). The move symbolised the final act of separation.

Footnotes

¹ As recounted in RBA Archives AV-000073 Reserve Bank - Separation - Interview with Dr HC Coombs, audio cassette - 18 December 1984. Dr HC Coombs, the Reserve Bank’s first Governor (and last Governor of the Commonwealth Bank in its original form), mentioned that he had initial misgivings himself regarding separation when it was first raised, as he felt that for a central bank to understand and advise on savings and trading bank business, its staff must work within such a system. In that sense retaining the Commonwealth Bank as it was, was important to the integrity of the banking system. However, he always supported the Government's decision and the success of separation, and willingly took on the role of Governor of the central bank, seeing it as a clear delineation between the need for monetary controls, and the more commercial and business aspects of a financial institution. 

² The Bank’s official historian, Associate Professor Selwyn Cornish, will be publishing an article in the January 2025 RBA Bulletin titled ‘RG Menzies and the Creation of the Reserve Bank’, regarding Robert Menzies’ role in the separation of the commercial and central banking functions of the Commonwealth Bank. In addition, Associate Professor Cornish has written and spoken about the topic of separation, including at the Robert Menzies Institute at the University of Melbourne Selwyn Cornish: ‘A Living Organism’ The History of the Reserve Bank of Australia | Robert Menzies Institute

³ Macfarlane IJ (2002), ‘Sir Leslie Melville: His Contribution to Central Banking in Australia’, Remarks at the Inaugural Sir Leslie Melville Lecture, Canberra, 22 March, 2002.

⁴ RBA Archives S-a-470, letter from Dr HC Coombs, Governor, to Harold Holt, Treasurer - 15/1/1960.

⁵ RBA Archives S-a-470, letter from Treasurer, Harold Holt to Dr HC Coombs - 20/1/1960.

⁶ RBA Archives AD-SB-25, Advertising Department - Staff Magazines - ‘Bank Notes’ - March 1957 - December 1959 (quarterly) - 1918 - 1959.

This information is drawn from records held by the Reserve Bank of Australia and the following external sources:

Coombs HC (1931), The Development of the Commonwealth Bank as a Central Bank, thesis submitted for Master of Arts degree (awarded), University of Western Australia.

Cornish S (2010), The Evolution of Central Banking in Australia, Reserve Bank of Australia, Sydney. 

Cornish S, Selwyn Cornish: ‘A Living Organism’ The History of the Reserve Bank of Australia | Robert Menzies Institute

Giblin LF (1951), The Growth of a Central Bank: The Development of the Commonwealth Bank of Australia, 1924–1945, Melbourne University Press, Melbourne.

Macfarlane IJ, ‘Sir Leslie Melville: His Contribution to Central Banking in Australia | Speeches | RBA

O’Malley K (1908), The Commonwealth Bank - The Facts of its Creation, JJ Miller, Melbourne.

Schedvin B (1992), In Reserve, Central Banking in Australia, 1945-75, Allen & Unwin, St Leonards.

There are a number of records within the RBA Archives that relate to this topic. These can be found in Secretary’s Department, Premises Department, the Board records and Governors and Senior Personnel records and include correspondence between the Bank and Treasurer, Prime Minister, and Treasury. Of particular interest is file S-a-470 SECRETARY'S DEPARTMENT - Commonwealth Bank - Separation Section 19 - Part 4 - Correspondence with Treasurer & Secretary to Treasury - 1959-1960 (Expanded Number 2006/07997), which contains correspondence between Dr Coombs and Harold Holt, regarding the successful separation of the commercial and reserve functions of the Commonwealth Bank.

There are also records relating to legislation, which document the changes to the Commonwealth Bank and other related Acts. Details regarding these can be viewed in the Research Guide: The Commonwealth Bank of Australia - The legislation that created and developed it - 1911–1959.

The Establishment Department records are also a source of information regarding separation. As separation approached, it was noted that several central banks (including the Bank of England), had a department that managed the functions and responsibilities relating to staff, communications, training, advertising, legal opinions and bank premises, all co-ordinated in an Establishment Department or Office, and it was suggested that such an arrangement would have administrative advantages for the RBA. The RBA duly created such a department, which ran from 1960–70 and mostly dealt with legal opinions regarding staffing issues and premises. There are also photographs of the typing pool and other administrative type work, linked below.

There were two interviews conducted in 1984 that document the separation through the eyes of Dr HC Coombs, the Governor of the Commonwealth Bank at the time of Separation, and Mr AC McPherson, the Secretary and Solicitor of the Commonwealth Bank, who along with Treasury officials assisted in drafting the legislation in 1957–59. The interviews cover the personal thoughts of both men regarding separation, why it occurred, how staff were chosen for the different banks (Savings, Trading, Development and Central), the key players from the Bank, Government and Treasury, the role of Board members, and how the site for the Head Office of the RBA was chosen (and why Sydney over Melbourne). The interviews, while relying on memories from 24 years earlier, give a fascinating insight into the feelings and thoughts of those who lived through separation.

In addition, there are photographs of Dr Coombs, as Governor of the Commonwealth Bank in 1959 and Reserve Bank in 1960 and photos of some RBA Board members, also taken in circa 1960. Staff magazines, such as Bank Notes (for the Commonwealth Bank) and Currency (for the RBA) also document the feelings of staff leading to separation and shortly after it, and include speeches given by Dr Coombs to staff of the Corporation and RBA.

• SA-65-99 Secretary's Department - Archives - Separation Issue, 1911 - 1959
• S-a-444 SECRETARY'S DEPARTMENT - Commonwealth Bank - Separation Section 1 - General -1952
• S-a-470 SECRETARY'S DEPARTMENT - Commonwealth Bank - Separation Section 19 - Part 4 - Correspondence with Treasurer & Secretary to Treasury - 1959-1960
• S-a-471 SECRETARY'S DEPARTMENT - Commonwealth Bank - Separation Section 19 - Part 5 - General - 1959-1960
• S-a-473 SECRETARY'S DEPARTMENT - Commonwealth Bank - Separation Section 19 - Part 7 - Commonwealth Gazette Notices - 1960
• S-a-476 SECRETARY'S DEPARTMENT - Commonwealth Bank - Separation Section 20 - Reserve Bank of Australia - Part 3 - Plans for Separation - Proclamation etc. - 1959-1962
• S-a-477 SECRETARY'S DEPARTMENT - Commonwealth Bank - Separation Section 20 - Reserve Bank of Australia - Part 5 - Sale of Present Head Office Premises to Commonwealth Banking Corporation - 1959-1965
• P-a-177 Personnel Department - Acts - Banking Legislation - Staffing Aspects - Lists - Officers (Staff) Transferred to the Reserve Bank and Commonwealth Banking Corporation at Separation - 1960
• SRP-a-1330 SERVICES DEPARTMENT - Premises Section - Minutes of Bank Premises (Separation) Committee - Part 1
• SRP-a-1331 SERVICES DEPARTMENT - Premises Section - Minutes of Bank Premises (Separation) Committee - Part 2
• AV-000074 Reserve Bank - Separation - interview with Mr A.C. McPherson - 18 December 1984
• MU-000463 Reserve Bank of Australia emblem / logo designed by Gordon Andrews produced in gun metal
• PN-002624 Sir William A Gunn - Member of the Reserve Bank Board - c. 1960
• PN-002684 Bank's Board dinner 1962 to celebrate Bank's Fiftieth Anniversary
• P2023/00282 RBA Head Office - Reference Images 2009 - 165 - Foyer (Bank’s Charter)

In addition to the above, there are eleven files relating specifically to separation, covering the period 1911 to 1960. See:

• SA-70-127 RI 1-2 Research & Information - Historical Information Supplied - Internal Enquiries - Separation Issue 1911
• SA-70-128 RI 1-2 Research & Information - Historical Information Supplied - Internal Enquiries - Separation Issue 1912 - 1920
• SA-70-129 RI 1-2 Research & Information - Historical Information Supplied - Internal Enquiries - Separation Issue 1920 - 1924
• SA-70-130 RI 1-2 Research & Information - Historical Information Supplied - Internal Enquiries - Separation Issue 1924 - 1929
• SA-70-131 RI 1-2 Research & Information - Historical Information Supplied - Internal Enquiries - Separation Issue 1929 - 1935
• SA-70-132 RI 1-2 Research & Information - Historical Information Supplied - Internal Enquiries - Separation Issue 1936 - 1945
• SA-70-133 RI 1-2 Research & Information - Historical Information Supplied - Internal Enquiries - Separation Issue 1945 - 1951
• SA-70-134 RI 1-2 Research & Information - Historical Information Supplied - Internal Enquiries - Separation Issue 1951 - 1953
• SA-70-135 RI 1-2 Research & Information - Historical Information Supplied - Internal Enquiries - Separation Issue 1953 - 1957
• SA-70-136 RI 1-2 Research & Information - Historical Information Supplied - Internal Enquiries - Separation Issue 1957 - 1959
• SA-70-137 RI 1-2 Research & Information - Historical Information Supplied - Internal Enquiries - Separation Issue 1959 - 1960

King O'Malley

The RBA Archives also holds information relating to King O’Malley, regarded by some to be the ‘father’ of central banking in Australia. After King O’Malley’s death in 1953, the trustees of his estate looked for a suitable repository for some of his personal effects. In recognition of his role in advocating for a central bank in Australia, the Reserve Bank was considered an appropriate home for a number of items, and these were transferred to the Bank’s archives in 1964 and are marked with an * below. In addition, there are a number of photographs and recordings of O’Malley held in the Archives.