Covered bond legislation was introduced in Australia’s parliament today (Thursday) by Treasurer Wayne Swan, promising what a Treasury official yesterday said would be “a significant change in the bank funding landscape in Australia” and some A$130bn (Eu97.4bn) of issuance.

Treasurer Wayne Swan

According to draft minutes of today’s House of Representatives’ sitting, Swan introduced the Banking Amendment (Covered Bonds) Bill, also presenting an explanatory memorandum to the bill. Debate of the bill was made an order of the day for the next house sitting.

At a European Covered Bond Council plenary in Barcelona yesterday (Wednesday) John Lonsdale, general manager, financial system division, markets group, at the Australian treasury, said that the bill could be approved during this session of the Australian parliament, which ends in November. He said that the bill has the “highest priority”.

Lonsdale provided an overview of the key features of the proposed covered bond legislation during a panel and said that the introduction of legislation in parliament was imminent.

The timeline for the passage of the legislation would depend on parliament, he said, with the Australian Prudential Regulation Authority (APRA) then needing to come up with associated guidance.

The legislation will include a cap on covered bond issuance whereby assets in the cover pool cannot exceed 8% of total assets at the time of issue. Lonsdale said that this cap would nevertheless allow issuance of some A$130bn in the coming years.

The legislation also includes a minimum overcollateralisation level whereby cover assets must equal a minimum of 103% of covered bonds issued.

Lonsdale said that while Australia has followed Europe’s lead in implementing legislation rather than opting for structured covered bond issuance, its framework would not be as prescriptive as some European jurisdictions.

The bill can be found here (link opens new window):

http://www.comlaw.gov.au/Details/C2011B00187