Australia Sets Up Covered-Bond Law, Sees A$130 Billion Sales

Australian Treasurer Wayne Swan today introduced legislation allowing financial companies to sell covered bonds at home, a move the nation’s Treasury estimates may lead to A$130 billion ($133 billion) of sales.

The law will amend the nation’s Banking Act to allow domestic lenders to sell the debt for the first time.

While offshore banks have been allowed to sell covered notes in Australia, the ban meant domestic lenders were unable to access cheaper funding in a nation with the highest interest rates in the developed world. Covered bonds, which typically have the highest credit rating, are backed by assets that stay on the bank’s balance sheet and can be sold in a default.

“This is a critical economic reform to strengthen and diversify the Australian financial system’s access to cheaper, more stable and longer-term funding,” Swan said in an e-mailed copy of a speech to parliament introducing the legislation. “Allowing our institutions another string in their bow -- to compete for funding with banks around the world -- is an absolute no-brainer.”

The government’s legislation will allow smaller lenders to pool together and jointly issue covered bonds, and ensures the “absolute security” of depositors’ savings, Swan said.

To contact the reporters on this story: Michael Heath in Sydney at mheath1@bloomberg.net; Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net