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Connexus : Issue 36
A s part of its package of banking reforms, the Gillard government has moved to change legislation to allow banks, building societies and credit unions to issue covered bonds. Covered bonds are securities backed by pools of assets such as mortgages. They have been traded on international markets for about 240 years and are seen as one way to give financial institutions access to cheaper funding. Many Australian mutual sector leaders see such a source as the preser ve of the major banks, at least in the short term. Abacus head of public affairs Mark Degotardi agrees it will be up to the major banks to test the domestic market's appetite for covered bonds. "I fully expect the big four to be out in the market pretty quickly after the legislation is in place," he says, adding that smaller institutions will have the chance to observe and learn from the process. Abacus wants to explore the possibility of an aggregated model where a number of mutual financial institutions could issue covered bonds. "There are a number of processes in place to see if we can access covered bonds as an aggregated solution," says Degotardi. "That might be another source of funding, [but] it could be 12 months before we are in that space." Covered bonds are part of the suite of funding options that would complement mutuals' traditional strength in retail deposits. Degotardi says the sector is closely monitoring the securitisation market's slow rebound after it all but expired in the global financial crisis, and he hopes the government will take further action to stimulate it. "While it's no longer The role of covered bonds is on the agenda as financial institutions consider new sources of funding. By Cameron Cooper Waiting on covered bonds 34 connexus www.abacus.org.au