The prudential regulator will bolster liquidity rules for mutual banks and credit unions to better align them with requirements on the major and regional lenders and avoid a Silicon Valley Bank-style collapse creating contagion for the broader financial system.

Eight months after SVB blew up, the Australian Prudential Regulation Authority said on Wednesday it would begin consulting on tougher liquidity rules for smaller banks. The move recognises that the failure of a smaller lender can undermine confidence in the stability of larger banks. It is set to lift funding costs for smaller banks.