The big banks are strong enough to withstand a major global economic downturn, the industry’s regulator says.
Commonwealth Bank, Westpac, National Australia Bank, ANZ and Macquarie Bank would all post significant losses in the event of a worldwide downturn but have the capital strength to survive, the Australian Prudential Regulation Authority (APRA) revealed on Thursday.
The statement comes after APRA put the banks under a ‘‘stress test’’. The test applies the hypothetical scenario of an escalation of Europe’s fiscal problems, causing a dislocation in global debt markets and a sharp downturn in North Atlantic economies.
The Chinese economy is also assumed to slow, causing a sharp fall in commodity prices and the Australian dollar.
Local spending dries up, causing unemployment to rise to 12 per cent, economic growth to fall by five per cent, and house prices to plummet by 40 per cent.
‘‘None of the banks would have failed under the downturn macro-economic scenario,’’ APRA chairman John Laker told a business function in Brisbane on Thursday. ‘‘This is a very positive result.’’
In addition, none of the banks would have breached the minimum capital requirements as stated by international regulatory requirements, Mr Laker said.
The International Monetary Fund (IMF) recently applied a stress test to Australia’s banks, which Mr Laker said produced similar results.
‘‘APRA’s recent macro-economic stress test, together with the IMF’s assessment, provides further confirmation that the Australian banking system has the capital strength to cope not just with the real-world stress test of the crisis, now stretching beyond five years, but with much greater adversity.’’