With Federation, the new Federal Parliament gained constitutional power over currency and banking matters. The Australian Labor Party’s platform included a pledge to establish a “Commonwealth Bank” to be “a bank of issue, deposit, exchange and reserve”. When the ALP won office in 1910, the Government duly brought forward a bill to establish the new Bank.
Many observers at the time interpreted this massive reimbursement – including from banks that had been hit particularly hard by the sovereign debt crisis – as a sign of normalisation. In reality, it was a symptom of the aggressive deleveraging that banks were pursuing, which made ECB borrowing unnecessary and costly to maintain on-balance sheet for many of them.