The Reserve Bank of Australia has assessed the Australian financial system as resilient to a severe downturn, with most borrowers able to withstand weaker growth and falling housing prices and banks positioned to absorb substantial losses while continuing to lend. Domestic cyclical risks do not currently pose a systemic threat, but mounting global market and operational vulnerabilities increase the risk of external shocks affecting funding, asset prices and critical financial services. Most mortgage borrowers retain substantial savings and housing equity buffers. Even after a further 20 per cent fall in housing prices, only about 5 per cent of mortgages would be in negative equity. Banks have maintained prudent lending standards and held a Common Equity Tier 1 capital ratio of 12.4 per cent in June 2026, which the RBA estimates would decline to about 11.6 per cent under a very adverse scenario. Business stress remains concentrated among smaller firms and energy intensive or cyclical sectors, while the systemic impact of domestic non-bank lenders and private credit funds remains limited by their size and weak links to banks. The principal threats come from geopolitical tensions, elevated sovereign debt, leveraged investors in bond markets, compressed global risk premiums and increasingly opaque debt financing of the artificial intelligence investment boom. AI enabled cyber threats, concentration among common service providers and weaknesses in critical infrastructure could also cause operational disruptions that amplify financial stress. Financial institutions and market infrastructure operators should strengthen contingency and recovery arrangements, maintain sound lending standards and improve crisis simulations and stress testing. The RBA also called for stronger liquidity risk management in the growing superannuation sector and identified Austraclear’s ability to maintain critical services during a prolonged outage as a supervisory priority.

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