During today’s Senate inquiry into banking competition, Chairman John Laker of the Australian Prudential Regulation Authority (APRA) ensures that the depositors remain protected in cases of bank collapse in light of the government’s plan to introduce covered bonds into the country’s banking scene.

The APRA has up to this point barred the issuance of covered bonds by Australian financial institutions because of its view that covered bonds features violate the standards set out in the Banking Act that protect depositors’ interests.

On APRA’s reversal of position, Dr. Laker admits, "We have had a very simple view for a long period of time."

Dr. Laker points out that the Banking Act clause “depositors must stand first in the queue in the event of a bank or deposit taking institutions” had always rendered covered bonds unacceptable in the system.

Dr. Laker says that they have had negotiations with the industry and that the recent move of the government is a policy call.

Dr. Laker affirms, "We have said to the government that we will review that policy and I'll go into that review open minded.”

He adds, "We'll see what the issues are and there are a number of complex issues involved including most importantly financial stability impacts, customer understanding impacts."

The government announced Sunday its three-stream banking reform package aimed to spur competition in the banking sector.

The third stream of said package includes the proposed amendment of the Banking Act 1959 that would allow Australian banks, credit unions and building societies to issue covered bonds to enable them to provide “reasonably priced credit to Australian households and small businesses in the decades to come.”