Australian deputy prime minister and treasurer Wayne Swan said today (Thursday) that covered bonds have been critical in helping the country’s financial institutions weather heavy market turbulence.

Speaking at an industry conference in Sydney, Swan reviewed developments since he introduced covered bond legislation into parliament on 15 September last year after close work with industry and regulators.

“I expect that date – the 15th of September – will ring in the minds of nearly every person in this room,” he said, according to a preliminary transcript of his speech. “It was in fact the third anniversary of the collapse of Lehman Brothers, which I think we’d all agree was the focal point of the global financial crisis.

“Of course, there could not have been a more appropriate day on which to introduce this fundamental economic reform to diversify the funding options available to Australian financial institutions and through them the economy. In the Parliament, I put the case for covered bonds based on a range of benefits which I think we would all agree have since been demonstrated through the A$30bn worth of covered bonds already issued.”

He said that it was “common sense” for Australian financial institutions to have as many funding options as possible.

“As I said last year, I thought it was absolutely critical to give our financial institutions access to this important market given Canadian and Norwegian banks were coming down here and cleaning up our savings,” said Swan. “I was determined to give our financial institutions the tools they need to compete for funds on a level playing field. And I’m really pleased to see that one of our regional banks – Suncorp – has now executed a covered bond deal.

“I look forward to the day when the first group of credit unions and building societies get together to jointly issue under the framework we provided.”

Further benefits of the introduction of covered bonds included, in Swan’s words:

• Against this backdrop of global instability, the capacity to issue for terms of up to 18 years is helping our banks continue to lengthen their maturity profiles and comply with new Basel III liquidity requirements;
• Domestic covered bond issuance is also helping to channel Australia’s national superannuation savings through the financial system into productive investment in all sectors of our economy;
• Covered bonds have provided access to cheaper funding relative to the cost of senior unsecured issuance, and spreads have tightened somewhat since their introduction.