The Australian Prudential Regulation Authority (APRA) has published its latest System Risk Outlook, warning that global market volatility and accelerating artificial intelligence (AI) risks could expose institutions to simultaneous financial and operational shocks. Australia’s financial system remains strong and stable, but maintaining resilience requires financial buffers, reliable operations and tested crisis capabilities that work together under pressure.
Government bond yields at longer maturities in advanced economies remain near their highest levels in at least 15 years. A disorderly market adjustment, potentially intensified by technology stock repricing or private credit stress, could raise Australian funding costs and reduce investment values. Domestically, housing prices have fallen about 6% since March, but household equity and repayment buffers, sound lending standards and bank capital continue to provide protection. Household debt of around 180% of disposable income could amplify a deeper downturn, particularly if further housing price falls coincided with a substantial rise in unemployment.
Building on earlier work with the Australian Securities and Investments Commission on tested AI and cyber preparedness, APRA is intensifying scrutiny of institutions’ AI risk management and formalising data collection on material service providers. Of the top 100 providers reported by regulated institutions, 80 are headquartered or principally operate overseas. Some individual providers support institutions collectively representing more than half of APRA-regulated financial assets, creating channels for widespread disruption. Targeted readiness assessments examine whether large, complex institutions can coordinate responses to concurrent pressures. The 2027 System Stress Test will explore how rapid AI adoption disrupting business models, or a sharp reassessment of AI asset valuations, could affect banks, superannuation funds, life insurers and the broader financial system.