Overall Features of Cover Bonds and Their Role in Bank Funding and Use by Australian Banks

1040 Words Feb 23rd, 2018 4 Pages
The Article ‘Financial Stability Review, March 2011, Box A’ and ‘Financial Stability Review, March 2011, Box D’ both highlight the main features of covered bonds including preferential claim of assets, its legal framework and the security associated with the issuance of a covered bond. The articles found that incorporating covered bonds in Australia’s financial system provides banks with ‘access to an additional and more robust source of funding’ (RBA, 2011, Financial Stability Review, Box A), if issuance is restricted.

The Speech entitled ‘Developments in Secured Issuance and RBA Reporting Initiatives’ executed by Chris Aylmer in November 2013 focuses on the progression of covered bonds over the past two years and how it has ‘proven to be a useful source of funding for Australian banks’ (Aylmer, 2013). Its role as a source of bank funding centers on diversifying the investor base and extending the tenor of their issuance. The RBA concludes that through the issuance of covered bonds, banks are able to access funding which is less sensitive to risk in the global market, in comparison to unsecured forms of funding. (Aylmer, 2013)

Part I: Main features of covered bonds

A covered bond is defined as ‘bonds secured by a pool of high quality assets on the issuing financial…

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