The Reserve Bank's half-yearly check finds the financial system resilient

The Reserve Bank of Australia (RBA) released its October 2026 Financial Stability Review on 1 October. It found the Australian financial system resilient, with most households, businesses and banks able to cope with tougher conditions. The Bank also said the main threats now come from abroad, and that keeping the system resilient needs continued effort.

The review is a regular check on how the system would cope with a shock

The Financial Stability Review is published twice a year. It looks at whether households, businesses, banks, super funds and other lenders could absorb a serious setback, such as a recession, a sharp fall in house prices or a disruption in global markets.

This edition uses data up to 25 September 2026. It reflects a year in which the RBA's Monetary Policy Board has raised the cash rate by one percentage point, to 4.60 per cent.

Most households with a mortgage have buffers in place

Higher interest rates have increased the share of income that goes on mortgage repayments over the past six months, the RBA said. Even so, around 2 per cent of owner-occupiers with a variable rate loan were in a cash flow shortfall in the first half of 2026, meaning their income did not cover their scheduled mortgage repayments and essential expenses. On the RBA's August forecasts, it is expected to stay a little under 2 per cent for some time.

Many borrowers have money set aside. The RBA estimates the median borrower could cover more than a year of scheduled mortgage payments from offset and redraw balances, a stronger position than before the pandemic. Most of those in a shortfall are estimated to have enough savings to cover it for at least six months, if spending is cut back to essentials.

Loans more than three months behind on repayments rose a little this year, but remain around their levels before the pandemic. House prices have fallen in recent months. Even so, fewer than 1 per cent of borrowers were estimated to owe more than their home is worth in July 2026. In a scenario where prices fell a further 20 per cent, the RBA estimates around 5 per cent of mortgages would be in that position.

For businesses, insolvencies as a share of operating companies fell over the year to the June quarter 2026 and are around their 2005 to 2019 average. They remain high in hospitality, construction and transport.

Banks are well capitalised and super funds passed a stress test

Capital is the money a bank's owners have at stake, which can absorb losses before depositors are affected. The banking system's main capital ratio, known as Common Equity Tier 1, was 12.4 per cent in June 2026, comfortably above what regulators require. In a hypothetical severe downturn, the RBA estimates it would fall to around 11.6 per cent, leaving banks able to keep lending.

Banks have replaced much of their overseas borrowing with deposits from Australian households. Deposits up to $250,000 per account holder at each bank, building society or credit union incorporated in Australia are protected by the Government's Financial Claims Scheme, which APRA, the banking regulator, administers.

Superannuation funds hold around one third of the financial system's assets, and around half of what APRA regulated funds manage is invested overseas. In APRA's first stress test of the whole super system, published on 30 June 2026, every participating fund held enough cash and liquid assets to meet withdrawals and requests to switch investment options.

Private credit funds, which lend directly to businesses outside the banking system, are estimated at around 10 per cent of total business debt at most, and less than 2 per cent of financial system assets. In June 2026, ASIC, the corporate regulator, asked these funds to improve how they value their loans and what they disclose to investors.

The main risks the RBA names are global

The RBA said that "the principal risks are increasingly coming from abroad." It pointed to geopolitical tensions, high government debt in many countries, high asset prices and rising borrowing in global markets. These leave markets open to a sharp correction, it said.

Optimism about artificial intelligence is supporting share prices, it noted, while the growing debt used to fund AI investment is less transparent and could be exposed if earnings disappoint.

The review gave close attention to operational risk. The RBA said a major cyber attack on a critical part of the system, particularly one that disrupted payments, could quickly cause wider stress. It called on financial institutions to strengthen their plans for recovering from disruptions.

A spread of investments can help when conditions change

The review describes how the system would cope in difficult conditions. It does not forecast that those conditions will occur. It may still be a useful prompt to check how your money is arranged.

Cash accounts and term deposits we arrange can keep money on hand and are covered by the deposit protection described above, up to its limit. Bonds pay regular interest and repay their face value at maturity, if the issuer pays, although their prices can move before then. Managed funds, shares and exchange traded funds can spread money across many companies and countries, and their values rise and fall with markets. Your adviser can check how these fit together for you, and review your super, including how much of it is invested overseas.

If you would like to talk about what the Reserve Bank's review means for your savings, investments or super, please get in touch with your adviser.

This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not a recommendation to buy, sell or hold any investment. Figures are as published on the dates given. Past performance is not a reliable indicator of future performance. Read the full risk warning