Australia's finance sector must brace for drastic and unprecedented action to stabilise its banking system in the face "of a significant possible correction in the housing market," the OECD warned yesterday."Be prepared for … bail-in plans in the case of bank insolvency," the OECD wrote in in latest Economic Survey of Australia."Several features of Australian financing limit the risk of financial fall-out from a house-price correction," the OECD said. "Banks are well capitalised and their liquidity position is sound. Indebtedness is concentrated in middle- and high-income households, and data indicate declining financial stress in recent years, despite rising mortgage debt. "Moreover, many mortgage holders have accumulated substantial buffers of advance payments."The more pessimistic scenario gets more than equal billing in the analysis."Nevertheless, the risk of a macroeconomic downturn from the cooling housing market remains. Notwithstanding the estimates that Australia's market is not greatly overvalued, house prices could fall more substantially," the OECD said. "Should this happen, household consumption could weaken. Households would cut their spending due to lower housing wealth and due to increased economic uncertainty generated by downturn. Households would also reduce expenditures related to the purchase, sale and maintenance of housing (such as spending on renovation and interior decoration). "Sustained decreases in house prices would also weaken construction activity. Weakened aggregate demand could in turn lead to losses on loans to businesses, putting stress on the financial sector."Bail-ins - of bank bold holders - have no precedent in Australia, though the animated fringe via Digital Financial Analytics continues to popularise the argument that bail-ins of depositors are now provided for under recent law reforms.A separate commentary from Moody's Investors Service highlights the genial starting point for any lunge into crisis worrying the OECD.Past-due loans grew in the second half of fiscal 2018, with impaired loans edging up from very low levels, and impaired residential mortgages generally declining.However, this was offset by an increase in housing loan delinquencies. Problem loan ratios rose more steeply at the regional bank, reflecting their greater business concentration in less-well performing segments. Yet, the banks' asset quality remained strong in absolute terms.