The 1890s – Drought, depression & bank failures

Before the 1890s, the New South Wales economy had enjoyed growth and development from the gold rush, the export of wool to Europe and the construction of railways.

Much had been financed with loans from Britain, but the collapse of Baring Bros Bank of London in 1890 led to chaos in world capital markets and easy finance quickly dried up. 

Heavily geared with debt, by late 1891, two Sydney banks had failed and in 1892 there was a run on the Savings Bank of NSW. In May 1893 the crisis increased when the city’s largest bank, the Commercial Banking Company of Sydney, suspend payments and other banks had their deposits frozen.

Treasury staff photo at Chowder Bay, 1894.

The Government sought to stabilise the banking sector through the Current Account Depositors' Act that gave the Treasury power to pay depositors in Treasury notes redeemable in gold within five years against certificates stating the amount of their credit balances in the suspended banks. 

The banking crisis was exacerbated by a long drought from the mid-1880s into the 1890s which saw many rural workers move to Sydney looking for jobs. This, increased unemployment in a city already suffering from a downturn in manufacturing and construction industry by the late 1880s.

Adding to the economic turmoil were strikes by shearers and maritime workers.

This depression was the most severe in Australia’s history with real GDP falling 17 per cent over 1892 and 1893.

It was a difficult time for NSW Treasury as it ventured into a new century, dealing not only with the immediate consequences of the depression, but also facing the challenges of impending Federation and the battle between free trade and protection.

Last updated: 04/11/2024