Summary of APRA’s System Risk Stress Test Findings

Executive summary

APRA’s inaugural System Risk Stress Test assessed how a severe but plausible shock could transmit across the Australian financial system, with a particular focus on the links between the banking and superannuation sectors. The exercise involved the four major banks and six large superannuation funds, and tested the system against extreme liquidity, market and operational disruption conditions. APRA concluded that participating institutions were able to withstand the shock and rebuild liquidity over the test period, demonstrating broad resilience across the system.

However, the findings also highlighted vulnerabilities that could amplify stress in a future crisis, including concentration risks, mismatched behavioural assumptions between sectors, and common dependencies on major service providers. APRA also emphasised that the growing scale and maturity of the superannuation system will increase its systemic importance and make the behaviour of large funds more consequential for banks, markets and members.

Key findings from APRA’s System Risk Stress Test

• The Australian financial system showed resilience to severe liquidity and market shocks, with all participating banks and superannuation funds able to withstand the stress scenario.

• System-wide stress testing revealed how actions taken by one sector can either amplify or dampen risks in another sector.

• Superannuation funds can act as a stabilising force by providing capital support, particularly in broader downturns affecting bank solvency or market confidence.

• Operational disruption at a material service provider could limit the speed and effectiveness of liquidity and risk-management responses across multiple entities.

• Concentration among large institutions and service providers increases the potential for decisions by a small number of entities to have system-wide effects.

Industry sector impacts

Banking sector

The major banks were able to withstand the severe liquidity shock modelled by APRA. The test nevertheless showed that banks are exposed to the behaviour of large superannuation funds because funds are important investors, depositors and providers of wholesale funding. If a bank faces idiosyncratic liquidity pressure, superannuation funds withdrawing funding could intensify the pressure. Conversely, in a broader downturn, superannuation funds may support banking stability by maintaining exposures or providing equity capital.

Superannuation sector

The superannuation sector was central to the exercise because of its growing scale, market influence and connections to banks and financial markets. APRA found that large funds were able to meet severe member withdrawals and switching activity, even at levels significantly above those observed during COVID-19. However, funds may need to sell liquid assets or rebalance portfolios rapidly during stress, which can affect investment outcomes for members and increase exposures to illiquid assets through the denominator effect.

APRA noted that superannuation’s systemic importance will continue to rise as assets grow and more members move into retirement. This will increase liquidity demands from pension payments and withdrawals, requiring stronger stress testing, liquidity management and operational readiness across trustees.

Insurance sector

The stress test did not directly model insurance outcomes, but it has indirect implications for insurers, particularly group insurance arrangements delivered through superannuation. Liquidity stress, member switching and falling account balances can affect the stability of premium flows and the administration of insurance benefits within superannuation. These indirect implications reinforce the importance of trustees and insurers maintaining robust insurance management frameworks, data quality, contingency plans and service provider oversight.

Financial markets and asset management

The exercise showed that financial markets are a key transmission channel for system stress. Large funds’ portfolio rebalancing, asset sales and foreign exchange hedging activity can influence market liquidity and pricing, particularly during periods of heightened volatility. As superannuation funds increase offshore investment and foreign exchange exposures, their actions during stress may have broader market implications.

Critical service providers and operational resilience

APRA identified common dependencies on major service providers as a potential amplifier of stress. If a material service provider is disrupted, multiple institutions may be constrained at the same time, reducing their ability to process transactions, execute liquidity actions, communicate with members and customers, or manage risk exposures. This makes operational resilience, third-party risk management and contingency planning critical across all sectors.

Implications for industry

• Banks should review assumptions about superannuation fund behaviour in liquidity stress, funding concentration and contingency funding plans.

• Superannuation trustees should strengthen liquidity stress testing, member behaviour modelling, operational readiness and governance over rapid portfolio changes.

• Insurers should assess the resilience of group insurance arrangements linked to superannuation member balances, contribution patterns and trustee administration processes.

• Market participants should consider how simultaneous asset sales, hedging activity and rebalancing by large funds could affect market depth during stress.

• All regulated entities should improve third-party risk management, scenario analysis and coordination arrangements for operational disruption events.

Conclusion

APRA’s System Risk Stress Test confirms that Australia’s major banks and large superannuation funds are resilient to a severe stress scenario, but it also shows that system resilience depends heavily on how institutions behave under pressure. The most important industry message is that interconnectedness cuts both ways: it can absorb shocks when institutions act as stabilisers, but it can also amplify stress when assumptions, behaviours or operational dependencies align in adverse ways. APRA has also indicated that it will launch a new system stress test during 2026–27, building on the inaugural exercise and further examining interconnections across the financial system.