Reserve Bank of Australia highlights growing superannuation liquidity pressures and AI market risks

At the AFR Super and Wealth Summit in Melbourne, Reserve Bank of Australia Assistant Governor (Financial System) Brad Jones cautioned that structural changes could complicate superannuation’s historical role as a stabilising force during market stress. Stress testing with the Australian Prudential Regulation Authority indicates the sector is generally positioned to withstand significant stress. However, more funds are moving into net cash outflow positions as members enter retirement, while foreign exchange hedging will generate growing liquidity demands. Jones reiterated concerns about the sector’s increasing ownership of domestic assets, including bank bills, continuing the bank’s earlier focus on how funds’ growing financial market footprint could transmit liquidity shocks. Unexpected early withdrawals during strained market conditions remain a particular vulnerability, unlike policy changes announced sufficiently far in advance for funds to adjust their products. During the pandemic, some funds experienced net outflows equivalent to 5% to 6% of assets, compared with 1% to 2% for most. Concentration among fund administrators and custodians also creates vulnerabilities, particularly if operational disruption coincides with market stress. Artificial intelligence is accelerating both offensive and defensive operational capabilities. Jones also highlighted risks from elevated AI valuations, concentrated equity markets and increasing use of opaque debt structures, including vendor and circular financing. Geopolitical fragmentation presents additional financial and operational risks through divisions in payment systems and capital flows.