The Reserve Bank has received 10 submissions on proposed legislation that is designed to protect investors in covered bonds in the event of a trading bank failing and being placed in statutory management.
A Reserve Bank spokeswoman said the central bank would put out a summary of submissions "in due course". The bank would then seek Cabinet approval for the policy, before drafting legislation for its intended introduction this year.
Covered bonds are debt securities issued by banks, where the bond holder is both an unsecured creditor of the bank and holds a secured interest in a pool of assets, called the cover pool. In the event of a bank failure, holders of covered bonds rank higher than bank depositors when it comes to getting their money back.
The risk is that assets available to covered bond owners may not be available to other creditors in the case of a liquidation.
The Reserve Bank's view is that covered bonds can provide banks with access to a stable funding source, which helps support stability during times of severe disruption in international markets.
