Australian banks are well capitalised and profitable, and have sound lending standards and plenty of liquid assets. That was the good news from the Reserve Bank's Michelle Bullock, addressing a global markets conference in Sydney yesterday.Bullock gave a recap of major influences on the banking sector, and noted the major banks are already very close to meeting the Australian Prudential Regulation Authority's "unquestionably strong" capital benchmarks. "This is good for the resilience of the banking sector in the face of any downturn," she said. The recent focus on tightening lending standards has further improved the resilience of both bank and household balance sheets. But some risks remain, with lending by the less-regulated non-ADI sector increasing quickly and is higher risk, she said."More recently, various inquiries into the financial sector have highlighted cultural issues within the banks," Bullock went on. "While the Royal Commission has brought to light some poor behaviour by the Australian banks, the direct financial impact on them has been relatively modest so far. "International experience has shown that poor culture can have a significant adverse impact on banks, including on their financial performance and capital position through remediation costs and fines." The fines to date are relatively small compared with the major banks' combined profits of around A$30 billion per annum. But there are also costs from remediation of past behaviour, which have been reflected in banks' profit announcements in recent times, and there is also the possibility of class actions. "Furthermore, risks from the external environment are high and operational risk, particularly in the form of cyber risk, is increasing. We therefore need to remain vigilant," she said.But there are two other risks yet to be dealt with: cyber risk and external risks.A successful attack on a financial institution could result in a significant loss for that institution. The attack on Bangladesh Bank, for example, resulted in a loss of US$81 million but it could have been much larger. However, what concerns the RBA more than financial loss is an attack affecting the integrity of the data held by a financial institution which could even result in a lack of confidence in the banking system more broadly, with potential withdrawals of funds from financial institutions and liquidity issues for the financial system."If an attack disrupted payment systems it could cause significant difficulties for households and businesses and disrupt economic activity," Bullock said. "A disruption to the settlement of transactions for an extended period could cause issues for the operations of markets and result in a build-up of significant settlement risks in the financial system." These are very unlikely outcomes, although regulators are nevertheless focusing on how financial institutions are mitigating the risks - not just prevention but detection, response and recovery.The second risk to Australia's financial stability that Bullock highlighted was the global environment. "Compensation for risk worldwide remains low, asset prices are at high levels and markets are vulnerable to a sharp increase in risk sentiment which could have implications for banks' offshore funding and