Our baseline settings are not set-and-forget, we adapt them as risks and the resilience of the financial system evolve. Figure 8: The Reserve Bank’s approach to financial stability  Based on our understanding of the financial system, we can enhance resilience by establishing rigorous baseline requirements and adapting them as necessary. Table 1 lists the range of prudential and macro-prudential instruments available to us.
For example, we can increase capital buffers for banks, or we can tighten Loan-to-Value Ratios (LVRs) if risks related to household indebtedness are excessively heightened. We can also adjust liquidity requirements for banks to ensure they remain solvent.