A further incentive to allow covered bonds

No doubt the latest threat to securitisation markets provides even greater impetus to the push to allow Australian ADIs to issue covered bonds.

There is talk in the market - though how well founded it is hard to say - that the treasurer, Wayne Swan, may be close to making an announcement that would overrule APRA's opposition to covered bonds.

In New Zealand the RBNZ has come out in favour of the development of a covered bond market. The RBNZ said in its financial stability report, released last week, that it supports the development of covered bonds and is working on developing a specific policy to facilitate this. This is consistent with its desire to see New Zealand banks increase the level and the term to maturity of their core funding.

In Australia the issue remains topical among those in the banking sector engaged with banking policy debates.

Abacus, the lobby group representing credit unions and mutual building societies, is preparing to release a position paper opposing change to the Banking Act to facilitate the entry of Australian financial institutions into the covered bond market.

The Abacus view is that it would be a change that helped big financial institutions, not small ones, and would not do anything to promote competition.