He also said all banks big and small should undergo annual stress tests; compensation should be aligned with responsible management; boards should deliver strong oversight, and regulators should be properly resourced to rigorously supervise institutions. “Regulators can’t regulate away fear, but you can put a cap on it,” Gorman said.

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“Force banks to operate with small sandboxes, vigilant oversight, aligned compensation policies, strong boards, stable CEOs, intentional succession planning, rigorous annual stress tests and capable supervision. Even with that, some individual banks may fail, but it is much less likely to be systemic.”

Separately, the banking boss said Australia had a “complex” relationship with China given it is the nation’s biggest export market, but backed the tightening in security ties with the US and the UK.

Gorman said that just as Australia relies on China for trade, China’s economy depended on the world because its consumers did not consume the goods its economy produces – declaring “trade is China’s umbilical cord”. All up, he suggested Australia could continue to have a strong trading relationship with China.

“We should look forward to many decades of US, China and Australia trade and understand the inevitable issues that will be part of that journey. But in my view, to be the ally of one is not to be the enemy of the other,” Gorman said.

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