Banks in Australia and New Zealand would keep lending to households and businesses through a severe recession in both economies, according to headline results from the 2026 Trans-Tasman Stress Test.
For brokers, the main takeaway is that even a deep modelled downturn did not shut off lending. Banks kept supporting borrowers as the property market and the jobs market deteriorated.
The Australian Prudential Regulation Authority (APRA) and the Reserve Bank of New Zealand (RBNZ) ran the exercise together, their first joint stress test since 2017. Both regulators found the banking systems would stay resilient, although banks would face heavy losses and strain on capital and liquidity.
Property prices fell significantly and unemployment rose sharply in the hypothetical scenario, as higher energy costs drove up inflation and squeezed household incomes. The scenario combined rising geopolitical tensions in the region, a sharp jump in oil prices, and a deep downturn in both countries. Regulators also built in a funding shock, a market closure, and a cyber-attack on an offshore operation owned by a bank.
The findings echo the Reserve Bank of Australia’s October 2026 Financial Stability Review, which found that most borrowers would still have equity in their homes under adverse-but-plausible price falls, and that banks hold enough capital to absorb losses from a downturn while continuing to lend.
Separately, on 15 October 2026, APRA welcomed a Basel Committee on Banking Supervision finding that Australia’s bank leverage ratio framework is compliant with global standards, the highest grade available.
Australia’s four major banks own New Zealand’s four largest lenders, so trouble in one market can quickly spread to the other.
“That interconnection means a banking crisis in one country could well cause serious impacts on the other side of the Tasman,” said APRA deputy chair Therese McCarthy Hockey (pictured left).
The test also raised doubts over whether the majors could support their New Zealand subsidiaries in a crisis. According to the RBNZ’s detailed findings for New Zealand banks, parent support could not be guaranteed if both countries were under severe stress, and linked credit ratings meant a downgrade could raise funding costs across the group.
APRA will publish its detailed findings for Australian banks later in 2026, after discussing the results with participating banks. Both regulators will use the results to shape future supervision, risk assessments, crisis management, and stress testing.
Angus McGregor (pictured right), the RBNZ’s assistant governor for financial stability, said the regulators would consider running trans-Tasman stress tests more regularly.
“Feedback from participating banks indicated that the joint approach reduced regulatory burden and supported stronger engagement between Australian parent banks and their New Zealand subsidiaries,” McGregor said.
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