The Report is important as it shows there is bi-partisan support
for further government intervention to reinvigorate the RMBS market
and recognises the significance of securitisation as a funding tool
for the non-major banks and the non-bank originators, the survival
and prosperity of which is crucial to a competitive banking
The RMBS Recommendation focused on the impairment of the
securitisation market, and the impact this has had on the
non-majors and non-banks. The Report confirms that "the
securitisation model of financing should be supported through its
current difficulties" and recommends the introduction of a
Government guarantee for RMBS. Such a guarantee could replace the
wholesale funding guarantee and, if priced appropriately, could
restore a level playing field for mortgage lenders.
The Fee Recommendation focused on concerns over the
anti-competitive consequences of the fee structure for ADIs
availing themselves of the wholesale funding guarantee and the
guarantee for large deposits and, notwithstanding the presence of
these guarantees (and the principle that the market should price
all guaranteed debt the same), lower rated ADIs were paying higher
rates to attract deposits or to obtain wholesale funding. The
combination of these two factors being a competitive disadvantage
for the lower rated ADIs.
Other matters discussed in the Report include the interplay
between competition and solvency concerns, the transition to a
permanent deposit guarantee scheme, and the interaction between the
provision of a guarantee scheme and moral hazard (the Minority
Report recommends APRA monitor ADIs to minimise issues of moral
The Report comprises:
(a) a majority report by the Liberal and National Party senators
(b) a dissenting report by the Labour Party senators (the
Dissenting Report); and
(c) a minority report by the Independent senator (the
All three reports support the Fee Recommendation and, with the
exception of the Minority Report which is silent on the matter, the
RMBS Recommendation. The Dissenting Report says that the RMBS
Recommendation "is important to maintain competition and a
range of financial products in the marketplace ... the Government
should reassess the benefits of temporarily guaranteeing
Residential Mortgage backed Securities".
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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