Banks advised to stay resilient as market conditions become more uncertain
Australia’s main financial regulators are warning that growing geopolitical tensions and changes in global trade are increasing risks to financial markets, both overseas and at home.
In its latest quarterly statement, the Council of Financial Regulators (CFR) said global financial systems are becoming more fragmented, with recent shifts in trade policy and market volatility raising the risk of future shocks. The CFR includes the Reserve Bank of Australia (RBA), the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), and the Australian Treasury.
“Agencies had increased engagement with relevant government departments and other peer agencies on geopolitical risk to support information sharing and response coordination,” the statement said.
The council pointed to recent developments in the United States, including a tariff announcement in April that briefly rattled global markets before a partial rollback and trade deal with China eased concerns. Despite this, Australian regulators say financial institutions must remain prepared.
“It will be important for financial institutions to maintain the ability to withstand shocks and strengthen crisis preparedness for a range of scenarios, including geopolitical and operational shocks,” the CFR said.
The council also looked at local issues, including risks in the housing market and the effects of falling interest rates. The RBA has cut the official cash rate twice this year to 3.85%, and financial markets expect more reductions before the end of the year.
While the financial system is currently stable, the CFR warned that rising household debt could become a problem if borrowing increases too quickly.
“The council observed that while lender and borrower resilience is currently high, this strength could be eroded over time if lending standards deteriorated and households respond to an actual or anticipated easing in financial conditions by accumulating excessive debt,” the CFR said.
