The Reserve Bank of New Zealand announced a formal limit that could mean the issuance of covered bonds would be restricted to as low as five per cent of total bank assets.In an update on Friday, the RBNZ set an initial limit of 10 per cent but said the limit would be on the value of assets encumbered for the benefit of covered bond-holders as opposed to the actual amount of issuance. Given that banks sometimes collateralise nearly double the value of issuance, the actual amount of issuance could drop to as low as five per cent.This would be in line with the banking reform package announced in Australia in December, which proposed issuance of covered bonds to a limit of five per cent of an issuer's total Australian assets. However, unlike in Australia where the aim is to allow building societies and credit unions as well as banks to issue covered bonds, in New Zealand the RBNZ is only allowing banks to sell covered bonds.Banks usually collateralise their best mortgages against covered bonds to ensure the pool secures an AAA rating, thus enabling them to sell the bonds at a good rate. Data on covered bond issuance by Canadian banks shows that Royal Bank of Canada's collateralised mortgages stood at C$15 billion in December, and covered bond issuance stood at C$7.8 billion. Bank of Montreal collateralised C$7.6 billion for C$3.6 billion of covered bonds, and in case of Bank of Scotia it was C$7.1 billion for C$5.1 billion of covered bonds. CIBC's collateralised mortgages stood at C$7.9 billion, while covered bond issuance was C$6.4 billion.Bank of New Zealand is the only New Zealand bank to have issued covered bonds, making a NZ$425 million issue in June and following it up with a €1 billion (NZ$1.78 billion) issue in November.  Westpac is the next in line, with plans to issue up to EUR1 billion of covered bonds in February.