By setting the incentives correctly, a fully-fledged banking union permits an internalisation of this externality, making sure that banks strengthen their capital and liquidity on sunny days and can continue to lend on rainy days. Second, the Single Supervisory Mechanism can address cross-border externalities typically neglected by national supervisors and thus contribute to reversing the retrenchment and market fragmentation.
Inspections will also be the responsibility of APRA, but in the interests of information sharing, the Reserve Bank will be entitled to participate from time to time if it so desires. I do not imagine this would happen very often. Overall, it is APRA which will be setting and enforcing the rules designed to minimise the chances that financial institutions will fail.