Update on covered bonds

Release date
21 January 2011

The Reserve Bank has announced that a regulatory limit will be applied to the issuance of covered bonds by New Zealand banks.

It will set an initial limit of 10 percent of the total assets of an issuing bank, with this limit calculated on the value of assets encumbered for the benefit of covered bond holders.

The move follows the completion of a consultation initiated last October on the introduction of a regulatory framework for covered bond programmes developed by New Zealand banks.

Deputy Governor Grant Spencer said: "An initial limit of 10 percent will allow banks to develop covered bond programmes, whilst providing a conservative ceiling on issuance in the short term".

Mr Spencer said the Bank will review the appropriateness of this limit within the next two years, taking into account evidence as it emerges in the market.

The Reserve Bank will write to banks shortly to update their Conditions of Registration to give effect to the change.

Consultation on the appropriate regulatory framework supporting covered bond issuance was also carried out by the Bank. Further announcements on the form of the legislative support and the relevant disclosure requirements, will follow later this year.

The original consultation paper on covered bonds is available on the Reserve Bank website at /regulation_and_supervision/banks/policy/4206833.pdf (PDF 197KB).

Media contact:
Sonia Speedy
External Communications Adviser
04 471 3846, 021 663 082, sonia.speedy@rbnz.govt.nz