Australia proposes lifting banks' covered bonds limit to 12%

Oct 23 (Reuters) - Australian Treasurer Jim Chalmers on Friday announced draft regulations to increase the limit on banks' covered bond issuance to improve access to cheaper, stable funding sources.

Here are more details:

• Under the draft regulations, banks and other financial institutions licensed to accept deposits can issue covered bonds up to 12% of their assets, up from the current limit of 8%

• Covered bonds are a form of secured funding backed by both the issuer and a specific pool of assets, typically residential mortgages, according to the central bank

• A limit increase would allow banks, particularly smaller lenders, to raise funding at potentially lower costs and improve access to stable, longer-term financing

• In an address to the Citi A50 Australian Economic Forum in Sydney, Chalmers pointed to governments' and markets' increasing focus on borrowing costs and surging bond yields, saying "massive investments in the AI boom are ramping up competition for capital".

• "We are cutting red tape across the financial services industry by A$780 million ($547.09 million) a year as part of our plan to cut A$10.2 billion of regulation across the entire economy annually," Chalmers said

• Consultation on the draft regulations will close on October 30

($1 = 1.4257 Australian dollars)