The Australian Prudential Regulation Authority’s (APRA’s) latest System Risk Outlook report has warned financial system stability faces growing threats from an increasingly volatile global environment and the rapid escalation of AI-related risks.
Published twice a year, the report describes what APRA is seeing in the international and domestic environments, highlighting shocks and vulnerabilities that could affect the Australian financial system.
While noting that Australia’s financial system remains strong and stable, the report found persistent uncertainty and the possibility of simultaneous financial and operational disruptions mean this resilience cannot be taken for granted.
Key findings include:
- Global financial markets are under pressure. A sharp repricing could raise funding costs and reduce investment values in Australia;
- AI is creating new risks within institutions, accelerating cyber and operational threats that could have broader effects across the economy and financial system. Reliance on common service providers is also creating channels for widespread disruption; and
- Housing prices have declined and lending activity has slowed, but household and bank resilience remain strong overall. Higher living costs are putting household budgets under pressure, but most households have substantial equity and repayment buffers. High household indebtedness remains a key vulnerability that could amplify a more severe downturn.
APRA Chair John Lonsdale said maintaining resilience will require banks, insurers and superannuation trustees to have financial strength, operational readiness and crisis preparedness.
“Australia’s financial system remains resilient, but the risk environment is becoming less forgiving.
“The international landscape remains highly unpredictable, and vulnerabilities in financial markets and critical infrastructure could amplify future shocks. Rapid advances in AI are supporting economic activity but also accelerating cyber and operational threats and increasing reliance on a relatively small number of material service providers.
“Our financial system is well placed to withstand this turbulent period. Financial buffers and robust operations provide a strong foundation for system resilience. Recent stress testing, including APRA’s first System Risk Stress Test, provides further evidence of the financial system’s capacity to absorb significant market and liquidity stress.
“But institutions and regulators also need practical capabilities to manage crises that combine financial and operational pressures. In line with our most recent Corporate Plan, APRA will remain focused on ensuring our banks, insurers and superannuation trustees are well-prepared for financial and operational shocks, including complex crises where multiple pressures emerge simultaneously,” Mr Lonsdale said.
The full System Risk Outlook report is available at: APRA's System Risk Outlook - November 2026.