Covered Bonds Beneficial for Australia
The economies of many countries in the world are not doing very well today. Global financial crises have gone so bad that many countries are struggling to get out of the financial turmoil. Even the economy of Australia which is a developed country has not been spared. Its banking industry is constantly looking for ways to provide the best options and help the Australian banks can get.
The latest is the government’s proposal to allow Australian banks to issue covered bonds. This is seen to help lessen the money lenders’ reliance on offshore funding markets according to Fitch.
According to Fitch’s Financial Institutions group director, Tim Roche, allowing banks to issue covered bonds will help create some funding diversity for Australia’s banking system. It will also help address one major vulnerability of Australian banks which is its reliance on offshore wholesale funding markets.
He also added that aside from the covered bonds being a cost-effective method for long term debts, covered bonds also assist Australian banks in meeting the requirements of the net stable funding ratio under Bassel III. Covered bonds also provide much cheaper funding for banks as these usually carry AA or AAA credit rating.
Assets backing up covered bonds will be made available to repay clients who are under covered bonds and not repay depositors. In cases where the cover pools become insufficient, the covered bond holders will automatically be ranked together with other unsecured creditors.
These assets included in covered bonds include first mortgages over residential and commercial property, government securities, cash, and interest rates.
This move is seen by banking experts as a positive move. If this is truly beneficial to the banking industry, then it is worth to be given a try. What is important is that everything is done to help the country’s economy.
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Source: http://afr.com/p/markets/dealbook/covered_bonds_good_for_australia_VC24ER0G9RemArORbQeQIN?hl
