Major banks survive APRA’s ‘severe but plausible’ stress tests
The major banks have survived APRA’s stress tests underscoring the strength of the banking system in a hard landing scenario of 10 per cent unemployment, high inflation, and a one-third decline in house prices.
These conditions were not enough to trigger any breaches in the banks’ capital or liquidity buffers. Australian Prudential Regulation Authority chairman John Lonsdale said the economic assumptions were “severe yet still plausible” and the “stress tests results are very good”.
APRA Chief John Lonsdale gives a keynote address at the Citi Australia and New Zealand Investment Conference on Thursday. Oscar Colman
APRA, the prudential regulator, has imposed capital standards on banks to ensure they are “unquestionably strong” and is further strengthening the system to withstand future shocks based on learnings after the turmoil in the US banking sector in March.
The full results of the stress tests, which tested eleven banks including the big four, will be released early next year. “What I can tell you now is that no banks breached their prudential requirements on capital, all retained sufficient liquidity, and banks continued to provide credit to households and businesses,” Mr Lonsdale told the Citi Australia & NZ Investment Conference.
Nevertheless, he said APRA will launch a market consultation on liquidity, to ensure Australia learns from the collapses of Silicon Valley Bank and Credit Suisse – especially the speed at which bank runs in the digital age can happen.
After the IMF this week, and Reserve Bank’s Financial Stability Review last Friday, flagged a jump in the share of household income devoted to repaying debt, Mr Lonsdale said bad loans remained very low and the system as a whole is performing strongly.
He
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