Australia’s Senate passed the Banking Amendment (Covered Bonds) Bill 2011 today (Thursday), a day after the House of Representatives passed the covered bond legislation.

Senator Joe Ludwig of the governing Labor Party, giving notice that he was introducing the bill, said that allowing Australian banks, credit unions and building societies to issue covered bonds is a critical step in securing the safety and sustainability of Australia’s financial system.

“Given the current volatility in offshore bank funding markets, the government intends to urgently provide ADIs with the ability to issue covered bonds – which they have indicated they will do during November and December – because this [is] critical to maintaining the flow of credit to the Australian economy,” he said. “The offshore covered bond markets are currently the only term funding market which are effectively open, and were the only term funding markets which remained open during the global financial crisis.

“Our banks were not then able to issue covered bonds and the government was required to introduce a wholesale funding guarantee to allow our banks to raise funds on competitive terms. Covered bond[s] will allow the Australian banking system to diversify the range of funding sources it uses to meet the borrowing needs of Australian households and businesses, including at longer tenors and lower cost.”