In March, the chairman of banking and superannuation regulator Australian Prudential Regulation Authority (APRA), John Lonsdale, announced that the watchdog will be conducting Australia's first financial system stress test in 2025.

APRA executive board member Therese McCarthy Hockey told FINSIA's The Regulators event on Friday that "It's only in a crisis that we truly learn if the financial system can act as an economic shock absorber – keeping money flowing so that households and businesses can buy goods and services, pay their bills and make investments".

"Preparedness for such a downturn is essential at any time, but especially so right now as we face an increasingly volatile geopolitical environment with rising concern over the economic outlook for our main trading partner," she said in a speech.

That's why in in the first half of 2025 APRA would unveil its first system-wide stress test.

The "System Risk Stress Test", she noted, will specifically look at the connections between the banking and superannuation system, and potential impacts on the broader financial system.

"At the moment, we are engaging with industry and fellow Council of Financial Regulators agencies on the design of the activity, including the hypothetical scenario we will examine," Ms McCarthy Hockey said.

"The scenario will contain significant disruptions to financial markets, which will help us explore the impacts of liquidity stress between super funds and banks, and how their response impacts asset markets."

An "operational risk component" would be added to the test scenario to further assess "the dislocation caused by the market disruption".

Ms McCarthy Hockey noted that closely related to the financial system's readiness to withstand a crisis is "the capability to proactively manage the risks that arise from operating a business, whether an electricity blackout, industrial dispute or building fire".

"July's CrowdStrike outage, which impacted millions of Windows systems globally, was a great illustration of why APRA has a new prudential standard on operational risk management coming into force from the first of July next year," she said.

APRA was also building a better understanding of the impacts of climate risk on the financial system.

"Natural disasters linked to climate change present a threat to business continuity we are likely to see more of over coming years," she noted.