Financial Stability

A key objective of the Council of Financial Regulators (CFR) is to promote stability of the Australian financial system.

What is financial stability and why does it matter?

Financial stability means that the financial system (which is made up of a range of financial intermediaries, markets and market infrastructures) reliably provides the financial services that households and businesses depend on, including during periods of economic and financial market stress.

This supports the economy by ensuring households and businesses have the ability and confidence to save, borrow, invest, insure, make payments, manage risk and plan for the future. If the financial system stops functioning properly, these essential services can be disrupted which can lead to serious economic consequences.

How does the CFR promote financial stability?

Promoting financial stability requires ongoing assessment of potential vulnerabilities in the financial system, and taking action where needed to strengthen resilience.

The CFR agencies work together to identify and monitor systemic vulnerabilities and take action to strengthen resilience. At each of its regular meetings, the CFR reviews a broad range of risks and vulnerabilities and maintains a targeted set of priority focus areas that are prioritised for inter-agency collective action. These priorities are outlined in the annual CFR Initiatives on Systemic Risks and Vulnerabilities publication. This work draws on analysis from across the CFR agencies, including the RBA’s semi-annual Financial Stability Review and APRA’s semi-annual System Risk Outlook.

In rare cases, when large or unexpected events can overwhelm the system’s resilience, the CFR also plays a key coordinating role in efforts to contain disruptions and restore confidence in the financial system. This may involve responding to material stresses in financial institutions; disruptions in financial markets; interruptions to the smooth functioning of financial market infrastructures or payment systems; and major operational disruptions affecting the provision of financial services.

The CFR Memorandum on Crisis Management sets out the Council’s crisis management framework, including objectives, principles and processes.

What roles do the CFR agencies play?

Financial stability responsibilities are shared across the four CFR agencies – the RBA, the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), and the Treasury.

Each agency has a distinct but complementary role, and all work closely with each other to promote financial stability:

• The Reserve Bank of Australia (RBA) is the central bank, responsible for contributing to the stability of Australia’s financial system, regulating the payments system, and supervising and resolving clearing and settlement facilities. It is the ultimate provider of liquidity to the financial system and a key participant in financial crisis management.
• The Australian Prudential Regulation Authority (APRA) is the prudential regulator, responsible for supervising banks, insurers and superannuation funds. It is also responsible for macroprudential policy and the resolution of APRA-regulated entities.
• The Australian Securities and Investments Commission (ASIC) is responsible for monitoring, regulating and enforcing corporations and financial services law, and promoting market integrity and consumer protection across the financial services sector. ASIC regulates and supervises financial markets and regulates clearing and settlement facilities, with its role being complementary to the supervision of those facilities by the RBA.
• The Treasury is responsible for advising the Government on financial stability, including on the financial regulatory framework, policy responses to help alleviate the economic impact of financial crises, and any necessary Government support in resolutions.

Together, these complementary financial stability mandates, supported by strong structured inter-agency coordination through the CFR and close bilateral relationships between agencies form a robust, flexible and effective framework for promoting and safeguarding Australia’s financial stability.