Financial Stability Review – October 2026

Transcript

Twice a year, the Reserve Bank's Financial Stability Review assesses the health of Australia's financial system, and the key risks that could affect it.

Our latest assessment is that the Australian financial system remains resilient, but there's no room for complacency.

Most households and businesses with loans are well placed to manage a period of softer economic growth and lower housing prices.

The strong run up in house prices since the pandemic means most borrowers have positive equity, and most households with mortgages have also built up large savings buffers.

Australian banks are well capitalised and are well placed to continue lending, even in the event of a material economic downturn.

At the same time, our report also identifies that risks are building from outside the Australian financial system.

And so for our system to remain resilient, financial institutions in Australia will need to keep working to improve their ability to manage a wide range of shocks.

The principal risks are increasingly coming from abroad.

High sovereign debt, high asset prices and growing leverage make global markets vulnerable to a sharp and potentially disruptive adjustment.

Geopolitical tensions and rapid technological change are adding further complexity to an already uncertain environment.

Optimism around AI is boosting asset prices and has considerable potential to improve productivity and resilience.

But at the same time, it's making the cyber threat landscape more challenging and the boom in long-term debt financing to support AI investments is becoming more opaque and more vulnerable to profits falling short of expectations.

Australia won't be immune to global disruptions if they were to occur.

These could relate to financial, geopolitical or operational shocks or some combination of them.

For instance, a major cyber-attack that caused an outage at a critical node in the financial system could quickly become a source of system-wide stress, particularly if it disrupted the flow of payments.

Here, our key message is that maintaining resilience will require sustained action.

Financial institutions must have robust contingency plans and crisis response capabilities, and being prepared for a wide range of disruptions, including those that involve both financial and operational stress, is critical given the nature of the threats to financial stability.

So overall, the Australian financial system is strong, but maintaining that resilience will require continued vigilance and investment from our key institutions.

You can read the full Financial Stability Review on the Reserve Bank's website.