Australia's Stress Testing Experience

In early 2006, the International Monetary Fund (IMF) concluded an assessment of Australia's financial system under the auspices of the Financial Sector Assessment Program (FSAP). An important part of the FSAP process was a stress-testing exercise of the banking system jointly undertaken by the IMF staff, the Australian authorities and the five largest Australian banks (these banks account for more than two-thirds of total resident Australian banking assets). The exercise consisted of two main parts: a macroeconomic stress test and a series of single-factor stress tests to gauge the sensitivity of bank profits to sharp movements in market interest rates. In addition, at the IMF's request, the Australian Prudential Regulation Authority (APRA) undertook a partial update of its 2003 mortgage portfolio stress test.