Australia's big banks are ready for the next global financial crisis. The Australian Prudential Regulation Authority released the results of its latest stress test yesterday, and its overall finding was that none would fail.APRA's scenario for the test was comparable with the actual experience of the United Kingdom, the United States and some European countries during the financial crisis.It involved a sharp slowdown in China and a "disorderly resolution" of eurozone problems, leading to a freeze in global funding markets. Commodity prices fell sharply and the Australian dollar also fell heavily.Over the three-year stress period envisaged there was a five per cent contraction in GDP in the first year of the downturn, unemployment peaked at 12 per cent, house prices fell 35 per cent and commercial property prices fell 40 per cent.The GDP shock in the scenario is more than four standard deviations and is based on the annual volatility of GDP in Australia since 1960.Presenting the results of the test in a speech yesterday, APRA chairman John Laker said: "Dislocation in global markets results in the largest banks being unable to access global funding markets for six months. The consequence is more intense competition for deposit funding and an increase in funding costs."The advanced [major] banks all report significant losses, driven by the high bad debt experience."The heaviest loan losses are in corporate, SME and commercial property portfolios.None of the banks would have failed and none would have breached the four per cent minimum tier-one capital requirement of the Basel II framework in any year. The weighted average reduction in tier-one capital ratios over the three-year stress period was 3.8 percentage points. The weighted average reduction in total capital ratios over the three-year stress period was 4.1 percentage points. This took the advanced banks, as a group, marginally below the eight per cent minimum total capital requirement of the Basel II framework by the end of the period. This result was not unexpected. Liquidity was put under pressure. However, cash outflows from wholesale funding maturities were largely offset by a growth in domestic deposits.The stress test set a benchmark that, by the end of the three-year stress period, there be no reliance on the Reserve Bank for ongoing liquidity support beyond its current repurchase arrangements. That benchmark was met.Laker said: "This is a very positive result. It reflects the efforts of the major banks to strengthen their tier-one capital positions since the crisis began."He said stress testing was a quantitative "what if" exercise aimed at assessing vulnerabilities and resilience in the face of severe but plausible shocks."The results of stress tests are used to set expectations for the level of capital that an institution should hold in normal times, to provide a sufficient buffer to withstand a challenging environment. They are also used to develop supervisory action plans."