The Australian financial system, including Australian Prudential Regulation Authority (APRA) regulated banks, insurers and superannuation funds, remains resilient in an increasingly volatile and interconnected world, according to the latest edition of APRA's System Risk Outlook report.
The latest edition of APRA’s System Risk Outlook report published on 21 May 2026 provides an overview of risks and vulnerabilities affecting the financial system from the perspective of Australia’s financial safety regulator.
The new report said, “Strong capital, liquidity and prudential safeguards mean our financial system is well-positioned to absorb shocks and continue providing critical services to households and businesses, even if economic conditions deteriorate.
“At the same time, the risk environment is evolving. Geopolitical tensions, rapid technological change and growing global interconnectedness are reshaping how shocks could emerge and transmit through the system.”
Other key insights include:
• Australia’s financial system is well-positioned to support the economy if conditions deteriorate in the current volatile environment. Banks and insurers remain well capitalised and have strong liquidity positions, while stress testing shows the system can withstand a range of “severe but plausible” shocks.
• AI is being adopted rapidly across all regulated industries, but governance arrangements have not matured at the same pace. At the same time, cyber threats are becoming more sophisticated, including from advanced AI models. APRA recently reinforced its expectations for sound AI governance and risk management via a letter to industry.
• Although private credit remains relatively small in Australia, risks are growing internationally. Australian institutions are exposed to offshore developments through multiple channels, creating potential spillover risks that warrant close monitoring.
APRA Chair John Lonsdale said that while the country’s financial system remains strong and stable, heightened vigilance is needed to keep it that way in a turbulent global political and economic environment.
“Strong capital, liquidity and prudential safeguards mean our financial system is well-positioned to absorb shocks and continue providing critical services to households and businesses, even if economic conditions deteriorate.”
“Sustaining that resilience, however, will require ongoing investment in strong risk management across the system. Among the areas we are most focused on are rapid developments in AI, which are outpacing the ability of many entities to manage the risks, and potential impacts on Australia’s financial system flowing from the war in the Middle East and other geopolitical volatility,” Mr Lonsdale said.