the gold rush days in bendigo. on the other hand, during this period, the virtues of a well run, straightforward business model, reliable retail funding, strong knowledge of the local market, and a suite of attractive retail banking services came once again to the fore. soundly run institutions have seen a rise in their market positioning relative to more risky ones. soundness, however, is only one part of the equation. of course we need the financial system to be a safe repository for the savings of the population. but to play its full role in the economy, the financial sector needs also to mobilise those savings, putting them in the hands of investors who are in a position to make effective use of them. banks are in the business of risk management, not complete risk avoidance. their job is to offer a secure savings vehicle on the liability side of the balance sheet, but to take a measured degree of credit, maturity and liquidity risk – very carefully managed! – to provide finance for sound investment propositions. those propositions range from housing, to small business, to large scale investment projects such as the ones that are happening apace at present with the commodity price boom. with capital markets struggling at present, this role is even more important than it normally is. in addition, the transaction services that banks and other authorised deposit - taking institutions offer their customers are key to facilitating the huge volume of transactions which occur every day in the modern economy. historians point out that this function of the financial system broadly defined – the efficient mobilisation of financial capital – is critical for economic growth. as the industrialised economy took shape, markets for capital grew alongside. had it been otherwise, brilliant technological innovations would have remained in the laboratory, entrepreneurship would have been stifled, growth would have been slower and living standards lower. debt and equity markets, together with banks and other financial intermediaries, have been, and remain, key parts of the financial infrastructure. the history of bendigo provides a good example of this general principle. in the early years, prospectors sought alluvial gold, which was found in or around streams and for which the requisite capital equipment was a pan and a shovel. as time passed and prospectors increasingly turned their attention to quartz - gold deposits, in some places deep underground, more physical capital was required. steam - and air - driven equipment made men working deep underground productive enough that profit could be earned even when a great deal of rock had to be

adelaide bank, the new entity has assets of around $ 50 billion, and is australia ’ s 11th largest bank. 1 though small in market share, its branch presence is considerably larger. if we were to compile a list of financial institutions of the second half of the 19th century, we would find that few of the names would be familiar ones. not many entities of that time are still in existence today. our major banks, of course, have a long history, in some cases dating back to the early convict era. but a great many financial institutions of the 19th century, particularly victorian building societies, succumbed to one or other of the busts that occurred in the 1890s, the 1930s and the 1990s. the 1890s episode was a particularly severe depression in victoria, with a collapse in land values and widespread closures of financial institutions. nearly half the building societies ranking based on banks ’ resident assets in australia. closed. this, as always, followed a period of extreme euphoria. consider the way the historian michael cannon describes the general scene in melbourne in the 1880s : the land mania of the 1880s took two main forms. the first was based on a plethora of building societies, whose optimistic officials believed that every family in the colony could simultaneously build their own house, keep up the payments through good times and bad, and support an army of investors who were being paid high rates of interest for the use of their money. the second form of mania was the deeply - held belief that it was impossible to lose money by “ investing ” in land – a belief which persists to the present day. 2 those words, penned in 1966 about an event a century ago, carry a more than faint echo of more recent times in other parts of the world. if we may paraphrase cannon, too many of the world ’ s major financial intermediaries thought that loans of dubious quality, originated by salespeople they knew little about, to borrowers whose credit standing, to the extent it was known, was very poor, could be sold in ever increasing quantities to investors looking for aaa security. one day the music stopped, as it always does, and they were left standing. the 1890s were tough for the city of bendigo, as for most of victoria. a number of banks in the city closed their doors. but its main building society remained sound. “ the bendigo ” had not ventured as far into melbourne real estate as others, nor was it as highly leveraged.