Today the first covered bonds were issued under a key Gillard Government reform to provide cheaper, more stable and longer term funding for our financial system, and improve the flow of credit in our economy.
All Australian banks, credit unions and building societies can now benefit from the issuance of covered bonds to access cheaper sources of funding.
Ultimately, this important reform will also increase the availability of reasonably priced credit to households and small businesses.
The Government last month passed legislation to allow covered bonds after working closely with our financial institutions and regulators over two years to develop a framework for their issuance.
Covered bonds offer institutional investors more security over their investment than normal bank bonds so they are willing to lend to our financial institutions for less.
With continued volatility in global financial markets, allowing our financial institutions to issue covered bonds is a critical economic reform to strengthen and diversify our financial system's access to funding in offshore wholesale capital markets.
Our banks are very well funded for the period ahead, having done a lot of heavy lifting to reduce the amount of funds they borrow offshore as they move to more stable, longer-term funding.
However, this reform is vital to ensuring our banking sector can keep providing reasonably priced credit in the years to come. Treasury estimates that the Government's framework will allow Australian institutions to issue some $130 billion of covered bonds in coming years.
Covered bonds will assist our banks in meeting the new Basel III liquidity reforms which require a transition to longer term sustainable funding.
A deep and liquid covered bond market will also help to channel our national superannuation savings through the financial system into productive investment in all sectors of our economy.
The Gillard Government is working hard to build a more competitive and sustainable banking system for all Australians, where every family and small business gets a fair go.
We got the big calls right during the global financial crisis to secure our financial system, and preserve the competitive foundations of our banking sector.
Today's issuance by ANZ marks the next step in ensuring that our banks, credit unions and building societies have the capacity to safely lend for the decades to come.
16 November 2011