(12 November 2012 – Australia) Australia’s biggest banks have undergone “stress tests” from the Australian Prudential Regulation Authority (APRA) showing they would be able to survive a huge shock to the economy which includes a 35 percent plunge in house prices and unemployment soaring to 12 percent.APRA published the results on Thursday showings its gauge on how banks would cope with a deep economic crisis.
If the eurozone were to collapse and send the global economy into chaos, causing Australia’s economy to shrink by 5 percent in a year, the regulator found the nation’s banks would face ”significant” losses.
The tests also found the banks were also in a position to survive a sudden freeze in global funding markets – which flared up as a key weakness during the 2008-09 global financial crisis.
The big five banks involved in the test were Westpac, National Australia Bank, Commonwealth Bank of Australia, ANZ and Macquarie Group, which make up 80 percent of Australia’s banking system.
Under the scenario used in the test, Australia was hit by a plunge in the economies of China, Europe and North America.
It assumed Australian house prices fell 35 percent from their peaks and unemployment surged to 12 percent – higher than the crippling levels reached during the early 1990s recession.
It also assumed global debt markets were closed to banks for six months, sparking fierce competition for deposits, which crimped lending margins.