I refer to your memorandum dated 1st August, 1945, inquiring as to what constitutes ‘banking business’ for the purposes of the Banking Act 1945.

‘Banking’ is admittedly a vague word. Varying definitions of ‘banking’, or of the related words ‘bank’ and ‘banker’, are to be found in numerous statutes, but they all have to be used with extreme caution, in the light of the context and objects of the particular Act concerned. In the Australian Constitution, the word is presumably used in its ordinary modern popular sense. This, according to the Oxford English Dictionary, is ‘the business of a banker; the keeping or management of a bank’. A ‘bank’ is defined as follows:

An establishment for the custody of money received from or on behalf of its customers. Its essential duty is the payment of the orders given on it by the customers. Its profits arise mainly from the investment of the money left unused by them.

Webster’s Dictionary defines a bank as ‘an institution formed for the deposit, custody, investment, loan, exchange or issue of money, or for facilitating the transmission of money by drafts or bills of exchange’.

Sir John Quick and Sir Robert Garran in their Annotated Constitution⁽¹⁾ point out that this definition ‘covers every probable phase or combination of banking, namely, the deposit, custody, investment, loan, exchange, issue and transmission of money’. Another definition which has been attempted is as follows:

‘banking business’ means receiving money on current account or on deposit; accepting bills of exchange, making, discounting, buying, selling, collecting or dealing in bills of exchange, promissory notes and drafts whether negotiable or not; buying selling or collecting coupons; buying or selling foreign exchange by cable transfer or otherwise; issuing for subscription or purchasing or under-writing the issue of loans, shares or securities; making or negotiating loans for commercial or industrial objects; granting and issuing letters of credit and circular notes.

Mr F.A.A. Russell, K.C., in his work entitled The Law Relating to Bank and Customer in Australia,⁽²⁾ writes as follows:

The Law of Banking is used as a term to denote that portion of the Law which bears directly upon the rights and duties of bankers, when acting as such, and upon the customers of a bank in respect of their bank accounts, banking operations, and dealings in documents to which a bank is a party. The operation of banks and their customers are so far-reaching that the whole field of law would require to be traversed in order to bring under review the application of legal principle to the multifarious transactions carried out in the course of banking business. Ordinary banking business, however, has a certain well-understood compass, within which lies the daily routine work of bankers; this consists chiefly in the management of customers’ accounts, the payment of their cheques by exchange or by cash, the collection of documents for them, the arrangement of credit by discount or advances, the issue or user of bank notes or similar paper money, and transactions with other banks, branches, and agents in furtherance of these functions.

The writer continues:

Banking is in fact a dealing in money and credit and instruments of credit, by way of the exchange of either of these things for another, whether at the same time and place or at a distance or after an interval of time; its essential features are found in the receipt and care by the banker on account of the customer of money or instruments payable in money belonging to the customer and their proceeds when collected, and for repayment by the banker to him by paying his orders as he requires; it is carried on by persons singly or in partnership or as a corporate body or by a Government.

The clearest judicial indication of the scope of the word ‘banking’ in section 51(xiii) of the Constitution is, I think, to be found in the judgment of Isaacs J. (concurred in by a majority of the High Court) in State Savings Bank of Victoria v. Permewan Wright & Co. Ltd. (1914) 19 C.L.R. 457, at pp. 470–471. The question, in that case, it is true, was whether the State Savings Bank was entitled to the protection given by the Bills of Exchange Act to a ‘banker’ who in good faith and without negligence receives payment of a crossed cheque for a customer. The extent of the banking power was not expressly involved at all. Nevertheless, I think the reasoning of Isaacs J. is precisely applicable to the interpretation of section 51(xiii). Asking himself what constitutes ‘the business of a banker’ or ‘the business of banking’, Isaacs J. said:

The fundamental meaning of the term is not, and never has been, different in Australia from that obtaining in England. Various writers attempt various definitions, more or less discordant, and many of them referring to functions that are now very common and convenient, and even prominent, as if they were indispensable attributes. The essential characteristics of the business of banking are, however, all that are necessary to bring the appellants within the scope of the enactments; and these may be described as the collection of money by receiving deposits upon loan, repayable when and as expressly or impliedly agreed upon, and the utilization of the money so collected by lending it again in such sums as are required. These are the essential functions of a bank as an instrument of society. It is, in effect, a financial reservoir receiving streams of currency in every direction, and from which there issue outflowing streams where and as required to sustain and fructify or assist commercial, industrial or other enterprises or adventures.

If that be the real and substantial business of a body of persons, and not merely an ancillary or incidental branch of another business, they do carry on the business of banking. The methods by which the functions of a bank are effected–as by current account, deposit account at call, fixed deposit account, orders, cheques, secured loans, discounting bills, note issue, letters of credit, telegraphic transfers, and any other modes that may be developed by the necessities of business–are merely accidental and auxiliary circumstances, any of which may or may not exist in any particular case. I agree as to this with what was said by Fitzgibbon L.J. in In re Shields’ Estate (1901) 1 I.R., 172, at p. 198.

Bankers are not bound by law to open current accounts. They may confine themselves, if they wish, to what are known as deposit accounts, and make those deposits repayable at call or at stipulated times, and withdrawable as a whole or in part as may be agreed on. The method of withdrawal may be conditioned to be by personal application, or by written order. It is all a matter of contract.

I emphasise the two main points made by Isaacs J. in this exposition of what is meant by ‘the business of a banker’:

1. The primary and essential characteristic of the business of a banker is that he trades in the money of depositors. Both etymologically and historically, a ‘bank’ is first and foremost a place for deposit of money by the public.
2. A banker is a trader in money. An institution whose main or substantial business is not that of a dealer in money is not carrying on the business of a banker merely because it performs one or more functions that are ordinarily carried on by banks.

Halsbury’s Laws of England (2nd Edition Vol. I., pp. 782, 793–4, note (f)), while admitting that it is not clear what precisely constitutes banking business, adopts a narrower test than that propounded by Isaacs J. The view taken in Halsbury is that ‘probably the real test is the receiving money to be withdrawn by cheque’. In this view an ordinary savings bank would not be held to be carrying on ‘the business of a banker’. The definition in Halsbury was adopted by Griffith C.J. in Savings Bank of Victoria v. Permewan Wright (1914) 19 C.L.R. 457, at p. 465. But this was a dissenting view, and was expressly rejected by the majority of the Court. In my opinion, therefore, banking business should not be regarded as limited to what may be called the business cheque-paying banks.

Modern banks ordinarily carry on a number of activities which are conveniently associated with the business of banking, as thus described, but which strictly speaking do not form part of it. Thus in Halsbury’s Laws of England (2nd Edition Vol. I, p. 782, note (c)), it is said that ‘numerous other functions undertaken by modern bankers, such as payment of domiciled bills, custody of valuable discounting bills, stockbroking, executor and trustee business, trust corporation work, do not come within the strict definition of banking business’. No doubt these, and other like activities–but only when carried on by banks–are banking business.

In my opinion, the words ‘banking business’ denote a nexus of financial transactions, based upon deposits of money by the public. The scope of the expression cannot be ascertained by breaking up or analysing out what banks ordinarily do into a series of individual transactions, and assuming that the power attaches to each of those transactions, by whomsoever entered into. Lending money on security, for example, is an ordinary incident in the business of a banker. Many other institutions and persons are also engaged in the business of lending money on security. But that will not, of itself, show that they are carrying on the business of a banker, or are engaged in ‘banking’.

A moneylender, in some jurisdictions, is expressly forbidden to hold himself out in any way as carrying on the business of banking: see Moneylenders Act 1927 (U.K.), section 4(3); Money Lenders Act 1938 (Vic.), section 24(2). Similarly in New South Wales societies registered under the Co-operation Act 1923–1937, which include building societies, rural credit societies, and other organisations whose primary function is the making of loans to members, are expressly forbidden by section 67 of the Act to carry on the business of banking. The section adds a proviso, expressly permitting a society to receive deposits if authorised by its rules. This section clearly implies that whereas to receive deposits of money from the public is to carry on banking business, to lend money on security is not.

It follows from the foregoing that whether or not an institution is carrying on banking business is a question of fact which can only be determined by an examination of the particular facts. In many, if not most, cases there is little difficulty in deciding whether or not a particular institution is carrying on banking business but there are marginal cases which give rise to difficulty. What is clear, however, is that questions such as ‘Do pastoral companies carry on banking business?’ or ‘Do wool firms carry on banking business?’ do not admit of a general answer applicable to every case. The business carried on by one firm may differ from the business carried on by another and that difference may be all important on the question whether or not a particular firm is carrying on banking business.

I have set out, in a table hereunder, the types of business which may possibly be regarded as banking business, and have indicated whether each type of business is banking business when conducted:

1. with the public generally; and
2. otherwise than with the public generally:
1. regularly; and
2. in isolated transactions.

I desire, however, again to emphasise that generalisations are dangerous, and that the answer may be the opposite to that indicated if there are some special or particular circumstances associated with a given transaction. Further, a transaction which, by itself, may not constitute banking business, may, nevertheless constitute banking business when taken in conjunction with other transactions entered into by the same person.

* In these cases it is particularly difficult to generalize and the answer may be the opposite in specific cases.

# Yes, if money borrowed is for the purpose of lending.

The foregoing would appear to answer sufficiently the questions asked by the Commonwealth Bank.

An extra copy of this memorandum is attached for transmission to the Commonwealth Bank, if so desired.

[Vol. 36, p. 591]

(1) Quick, J & Garran, RR 1901, The annotated Constitution of the Australian Commonwealth, Legal Books, Sydney.

(2) Russell, FAA 1907, The law relating to banker and customer in Australia, 1st edn, Law Book Co of Australasia, Sydney. A second edition of this work was published in 1925 and a third edition was published in 1935.