Australia proposes to raise cap on banks covered bond issuance and opens consultation on financial sector competition

Australia proposes to raise cap on banks covered bond issuance and opens consultation on financial sector competition.

Australia's covered bond framework has long constrained issuance to a fixed share of a bank's assets, a limit that has been the binding constraint on how much of the cheap, term secured funding the majors can tap, and lifting it would widen that channel. The distinction worth drawing is between funding cost and funding mix: a higher cap lets banks substitute covered issuance for more expensive senior unsecured and offshore wholesale debt, which tends to compress spreads in the covered complex itself as supply rises, while modestly easing the marginal cost of term funding. Episodes of this kind have typically played out as a slow technical repricing rather than a discrete event, given that actual issuance is governed by demand and the banks' own funding plans, not the cap alone. The competition consultation running alongside is the slower-burn item; reviews of this scope have historically ranged from incremental disclosure tweaks to structural recommendations, and the early tell is the terms of reference and who is appointed to run it. The immediate follow-ons are the consultation timetable, any indication of the new cap level, and whether the prudential regulator signals comfort with the encumbrance implications for depositors.