"The first test came when a decision was required regarding the amount of capital needed to start a bank of that kind. Under the Act, the Commonwealth had the right to sell and issue debentures totalling 1 million. Some even thought that amount of capital would be insufficient, having in mind what had happened in 1893. . . .
"When Denison Miller heard of it, his reply was that no capital was needed."
Miller was wary of going to the politicians for money. He could get by without capital. Like King O'Malley, he knew how banking worked. (This was, of course, before the modern-day capital requirements imposed from abroad by the central banker's bank, the Bank for International Settlements.) Lang continued:
"Miller was the only employee. He found a small office . . . and asked the Treasury for an advance of 10,000. That was probably the first and last time that the Commonwealth lent the Bank any money. From then on, it was all in the reverse direction.
". . . By January, 1913 [Miller] had completed arrangements to open a bank in each State of the Commonwealth, and also an agency in London. . . . [O]n January 20th, 1913 he made a speech declaring the new Commonwealth Bank open for business. He said:
""This bank is being started without capital, as none is required at the present time, but it is backed by the entire wealth and credit of the whole of Australia.'
"In those few simple words was the charter of the Bank, and the creed of Denison Miller, which he never tired of reciting. He promised to provide facilities to expand the natural resources of the country, and it would at all times be a people's bank. "There is little doubt that in time it will be classed as one of the great banks of the world,' he added prophetically.
". . . Slowly it began to dawn on the private banks that they may have harbored a viper. They had been so intent on the risks of having to contend with bank socialisation that they didn't realise they had much more to fear from competition by an orthodox banker, with the resources of the country behind him.
". . . One of the first demonstrations of his vigor came when the Melbourne Board of Works went on the market for money to redeem old loans, and also to raise new money. Up to that time, apart from Treasury Bills and advances by their own Savings Banks, Governments had depended on overseas loans from London. . . . In addition to stiff underwriting charges, they found that the best they could expect would be 1 million at 4 per cent., at 97 1/2 net.
"They then decided to approach Denison Miller, who had promised to provide special terms for such bodies. He immediately offered to lend them 3 millions at 95 on which the interest rate would be 4 per cent. They immediately clinched the deal. Asked where his very juvenile bank had raised all that money, Miller replied, "On the credit of the nation. It is unlimited.'"
Another major test came in 1914 with the First World War:
"The first reaction was the risk that people might start rushing to the banks to withdraw their money. The banks realised that they were still vulnerable if that happened. They were still afraid of another Black Friday.
"There was a hurried meeting of the principal bankers. Some reported that there were signs that a run was already starting. Denison Miller then said that the Commonwealth Bank on behalf of the Commonwealth would support any bank in difficulties. . . . That was the end of the panic. But it put Miller on the box seat. Now, for the first time, the Commonwealth Bank was taking the lead. It was giving, not taking, orders. . . .
"Denison Miller . . . was virtually in control of the financing of the war. The Government didn't know how it was going to be achieved. Miller did."
And so this interesting story continues. Miller died in 1923, and in 1924 the bankers got back in control, throttling the activities of the Commonwealth Bank and preventing it from saving Australians from the ravages of the 1930s Depression. In 1931, the bank board came into conflict with the Labor government of James Scullin. The Bank's chairman refused to expand credit in response to the Great Depression unless the government cut pensions, which Scullin refused to do. Conflict surrounding this issue led to the fall of the government, and to demands from Labor for reform of the bank and more direct government control over monetary policy.
The Commonwealth Bank received almost all of the powers of a central bank in emergency legislation passed during World War II, and at the end of the war it used this power to begin a dramatic expansion of the economy. In just five years, it opened hundreds of branches throughout Australia. In 1958 and 1959, the government split the bank, giving the central bank function to the Reserve Bank of Australia, with the Commonwealth Banking Corporation retaining its commercial banking functions. Both banks, however, remained publicly-owned.