As expected, the Government yesterday announced that it will change the Banking Act to allow banks to sell "covered bonds", or bonds against which banks pledge pools of loans as collateral.The current law emphasises "depositor preference" in the wind-up of a bank and is seen as a barrier to selling covered bonds, which provide an alternative form of wholesale debt for banks to sell.There is likely to be a cap on the percentage of assets that banks can pledge to support wholesale funding of this type. The policy document yesterday mentioned five per cent of assets as an example.The Government and APRA will consult on the level of the cap over the coming months.