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Australia : Financial Sector Assessment Program-Technical Note-Stress Testing the Banking Sector and Systemic Risk Analysis

Author/Editor:

International Monetary Fund. Monetary and Capital Markets Department

Publication Date:

February 21, 2019

Electronic Access:

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Summary:

Bank capital levels have been strengthened and funding risks have also been reduced in recent years, while financial supervision and systemic risk oversight have been enhanced. Additionally, authorities have taken successful policy actions to moderate rapid growth in riskier segments of the mortgage market. At the same time, the banking system faces several challenges. Real estate valuations appear stretched while household leverage is at record highs, posing significant macrofinancial risks. A sustained period of economic growth, low policy rates, tax incentives and abundant credit have fueled the rise in household debt, pushing household debt-to-income to nearly 200 percent, which is among the highest in the world. The largest banks remain dependent on overseas wholesale funding, though reliance has declined in recent years. The ongoing Royal Commission (RC) inquiry is revealing a pattern of widespread misconduct in the financial services industry, including at the four major banks that hold some 80 percent of banking system assets.


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