the world's soundest banks

Australia has some of the world's soundest banks, according to a recent stress test that assumed severe but plausible economic conditions.

The stress test of Australian banks, undertaken by the Australian Prudential Regulation Authority in conjunction with the Australian and New Zealand Reserve Banks has revealed that the country's banks could weather a severe economic downturn even worse than the global financial crisis.

The test was based on a severe economic downturn in Australia that would result in an assumed drop of 3% in economic growth, a V-shaped three-year recovery a rise in unemployment to 11%, a 45% fall in commercial property prices and a fall of 25% in residential property.

The downturn would likely last three years and would be the result of a global crash much worse than 2008's market downturn.

All of the 20 major Australian banks examined, the twenty biggest in the country, survived the simulated downturn and passed the stress test, meaning that none breached the minimum tier-one capital requirement of 4%.

The test was carried out as part of a move by regulators in Australia to step up the practice after recent developments in other developed countries showed that major banks were not as financial sound as they appeared on paper, with proper stress tests not being carried out stringently enough.