The "marked oversupply" of multi-unit developments in Australian cities  "raises the risk" to banks in "in some geographic areas" the Reserve Bank of Australia asserted in its latest Financial Stability Review.The RBA turned its attention to the banking system's development lending and mortgage exposures in the inner-city areas of Brisbane, Melbourne and Sydney, adding to a recent flurry of analysis on risks from this facet of lending."If apartment market conditions were to deteriorate in these inner-city areas it is more likely that banks would experience material losses on their development lending rather than on their mortgages," the RBA said, while taking no definitive stab at the level of losses on either form of lending."The data suggest that around two per cent to five per cent of banks' total outstanding mortgage lending is to inner-city Brisbane, Melbourne and Sydney, and this share is likely to grow as the apartments currently under construction are completed. "At around A$20-30 billion, mortgage exposures are estimated to be larger in Sydney, reflecting Sydney's higher apartment prices and greater number of mortgaged dwellings, than in Brisbane and Melbourne where mortgage exposures are estimated at around $10-20 billion in each inner-city area."The RBA said that "by contrast, the available data suggest that around one-fifth of banks' total residential development lending is to these areas. Development exposures are a little larger in Melbourne and Brisbane than in Sydney, due to the greater volume of apartment construction currently underway, though they are each less than $5 billion.A conclusion labelled "potential losses" is more scenarios than projections."To gain a broad indication of the size of potential losses to banks, one can consider a hypothetical scenario where default rates rose to between five per cent and 15 per cent on inner-city mortgages, and then combine this witha range of housing price falls," the RBA said. Under this scenario - loan defaults of ten to 30 times the norm - "bank losses remain very low until price falls reach over 25 per cent or so," it said.