The late 1980s will long be remembered by Australia's large banks as a costly transition from a regulated financial system to a deregulated financial system. This has been reflected in the sharp increase in bad debts in the 1990s from lending decisions that were not particularly prudent. The removal of restrictions that were previously imposed under a deregulated system gave the banks the incentive to gain market share and to take advantage of profit opportunities that were not available under the previous system. The ensuing fierce competition between the banks, particularly in the corporate sector, led to a lot of business being written that under a regulated system would have been considered too risky. It was not just the psychology of the banking sector that led to the sharp increase in bad debts after 1987. The economic environment at the time played an important part in "busting the bubble" that existed in asset prices and resulted in some small business' and corporations being overexposed. This paper examines how productive bank lending has been in Australia's deregulated financial climate as opposed to the pre-1985 regulated market. In doing this we draw on the work of Eugene Fama who developed a theory on which the efficiency of capital markets could be based, namely the Efficient Markets Hypothesis. Our discussion will provide a statistical examination of the functional efficiency of the economy prior to and after deregulation. This has not been attempted in the literature surrounding this topic.