A stress test conducted by the Australia Prudential Regulation Authority (APRA) showed that all major banks in the country passed it. APRA Chairman John Laker, in a Thursday speech in Brisbane, declared that another global economic meltdown would not result in significant losses for Aussie lenders.
In an apparent confirmation of Macquarie Group's rising status as a major lender, the APRA stress test was conducted on five banks, namely: ANZ, National Australia Bank, Commonwealth Bank of Australia, Westpac and Macquarie which is expected to formally announce on Friday, Nov 9, its foray into residential mortgages.
The stress test used a scenario of 35 per cent decline in house prices, 12 per cent unemployment rate, China slowdown and the collapse of the eurozone which could result in another global financial crisis similar to what happened in 2008.
Under such a scenario, the country's economy is projected to shrink by 5 per cent and the banks would experience significant losses, but would be strong enough to survive the downturn.
He said that none of the five banks would fail or violate the capital requirements of the Basel II framework, the global regime for financial institutions.
"The result is testament, in part, to the stronger funding positions that the advanced banks had adopted since the crisis," The Sydney Morning Herald quoted Mr Laker.
He added the banks would also survive a sudden freeze in international funding markets similar to what happened during the last GFC. While he acknowledged that a freeze would be challenging for Aussie banks and cut margins, the banks' maturing wholesale debt would be offset by domestic deposits which continue to grow.
He pointed out that the new round of stress test was tougher than the one administered by APRA in 2010 and that the result is not a forecast.
"The stress test was intended to test the boundaries of severe but plausible, especially given the current relatively strong position of the Australian economy," Mr Laker said.