The Australian financial sector performs a pivotal role in providing credit to all other sectors in the Australian economy. How well it performs that role can determine how well the rest of the Australian economy fares in both the short and longer term. Australia has experienced the impact of credit contractions in the past, and more recently observed the implications of financial crises in other economies in the region and further abroad. A well functioning financial sector is essential in financing the operations of the local economy through both intermediation (i.e., borrowing the money from one sector to on-lend to another) and through auxiliary financial services such as securities broking and loan flotation, where the financial enterprise arranges the smooth processes of funding but does not step between the borrower and lender. 

The financial system in Australia can be thought of as having three overlapping components. The first component consists of financial enterprises (such as banks) and regulatory authorities, the Reserve Bank and the Australian Prudential Regulation Authority. The second consists of financial markets (for example, the bond market) and their participants (issuers such as governments, and investors such as superannuation funds). The third is the payments system---that is, the cash, cheque and electronic means by which payments are effected---and its participants (for example, banks). The interaction of these components enables funds for investment or consumption to be made available from savings in other parts of the national or international economy.

From 1 July 1998, a new financial regulatory framework came into effect, in response to the recommendations of the Financial System Inquiry (the Wallis Committee). Under the new structure a single prudential supervisor, the Australian Prudential Regulation Authority (APRA), has been established to take over responsibility for the supervision of banks, life and general insurance companies and superannuation funds. From 1 July 1999 building societies and credit unions have been supervised by APRA. Also from July 1, APRA has supervised benefit funds of friendly societies under the Life Insurance Act 1995, while the Private Health Insurance Administration Council regulates the health benefit funds of friendly societies under the National Health Act 1959. From 1 July 2000 it is expected APRA will transfer administration of self managed superannuation funds to the Australian Taxation Office. The Australian Securities and Investments Commission (ASIC) assumes responsibility for market integrity and consumer protection across the financial system. The Reserve Bank retains responsibility for monetary policy and the maintenance of financial stability, including stability of the payments system. The new regulatory structure envisages close and effective coordination between the Reserve Bank and APRA. 

The banking system comprise the Reserve Bank of Australia and 48 banks.  Of these, 28 are foreign-owned, the 122 branches of which are not subject to the depositor provisions of the Banking Act 1959. Banks from the US, the UK, New Zealand, France, China, Germany, Japan, Jordan, the Netherlands, Hong Kong and Singapore operate in Australia.  Foreign banks can apply for an Australian banking authority either as subsidiaries or as branches.

Before 1959, central banking business was the responsibility of theCommonwealth Bank. The Reserve Bank Act 1959 established the Reserve Bank of Australia as the central bank. From 1 July 1998,the Reserve Bank retains responsibility for monetary policy and themaintenance of financial stability, including stability of the payments system. Banking services were also provided at 2,720 giroPost locations, and 8,814 Automatic Teller Machines.