The Australian Prudential Regulation Authority (APRA) and the Reserve Bank of New Zealand (RBNZ) have completed the 2026 Trans-Tasman Stress Test, their first joint stress testing exercise since 2017. The results indicate the banking systems would remain resilient through a severe downturn in both economies, the regulators said.
Scenario combined geopolitical, oil and funding shocks
The stress test examined the hypothetical impact of an escalation in regional geopolitical tensions, a sharp oil price shock and a deep recession across Australia and New Zealand. It also included a funding shock, market closure and a cyber-attack disrupting a bank-owned offshore operation.
Under the scenario, higher energy costs and weaker economic activity led to rising inflation, falling household incomes, a significant fall in property prices and a sharp increase in unemployment. Banks faced substantial losses and pressure on capital and liquidity, but they continued to provide credit throughout the stress period, according to the regulators.
RBNZ's detailed findings for New Zealand banks said parent support could not be guaranteed if both countries were under severe stress. They also said linked credit ratings meant a downgrade could raise funding costs across the group.
Regulators weigh more regular joint tests
New Zealand's four largest banks are all subsidiaries of Australia's major banks. Both regulators run independent stress testing programs, but the joint exercise let them assess cross-border risks, recovery actions and parent-subsidiary links under a common scenario.
Participating banks said the joint approach reduced regulatory burden and supported stronger engagement between Australian parent banks and their New Zealand subsidiaries. RBNZ Assistant Governor Financial Stability Angus McGregor said the regulators will consider holding trans-Tasman stress tests more regularly.
RBNZ has published its detailed findings for New Zealand banks. APRA, which supervises institutions holding around $10.6 trillion in assets, will publish its own detailed findings later this year, after engaging with participating banks.
The Reserve Bank of Australia's October 2026 Financial Stability Review similarly found that most borrowers would still have equity in their homes under adverse-but-plausible price falls. It also found that banks hold enough capital to absorb losses from a downturn while continuing to lend.