If Australia is an economic miracle, with more than 25 years uninterrupted growth, then its banks are its most visible sign of strength.

After a near-death experience in the 1990s, they've reformed and bounced back dramatically: returns on equity now average around 15 per cent, compared to single digits in the US share prices and dividends have risen strongly over the past decade. At around twice book value, market valuations are well above global levels.

In fact, though, this ruddy good health masks some deeply worrying trends. The balance sheets of the biggest banks - Commonwealth Bank of Australia, National Australia Bank, ANZ and Westpac - are far more vulnerable than they may seem on the surface - and that means Australia is, too.

To most observers, this might sound alarmist. Scared straight after a mountain of bad loans nearly brought them down at the beginning of the 1990s, the banks reformed and minimised their international exposure, which meant they were insulated from the worst effects of the Asian financial crisis and the 2009 crash.