AOFM to support 'smaller lenders'

The Australian Office of Financial Management will be mandated to invest up to A$15 billion in the wholesale funding of smaller lenders "to continue supporting Australian consumers and small businesses," or so hopes the government of Scott Morrison.

The AOFM - which will recycle borrowed money - "will be provided with an investment capacity to invest in wholesale funding markets used by small ADIs and non-ADI lenders," the Treasurer, Josh Frydenberg said.

This funding line is presumably on top of the $2 billion already legislated for the Australian Business Securitisation Fund.

"Smaller lenders" remains to be clearly defined but includes non-bank mortgage funders and fintechs and may rope in the smaller ASX-listed banks.

The AOFM will be able to invest in:

-- residential mortgage backed securities.  

-- other asset backed securities

-- and warehouse facilities.

The government will provide the AOFM with investment guidelines.

For mutual ADIs, at least, wholesale funding is a pretty small component of overall liabilities.

APRA data for the December 2019 quarter put aggregate "Certificates of deposit" at less than $1 billion."

Chris Dalton, chief executive of the Australian Securitisation Forum last night said he  "applauded the government's quick and targeted response to the dislocation of funding markets that have temporarily frozen securitisation and other institutional markets."