The government says a bill being introduced to parliament on Thursday will make a new form of funding for banks clearer to investors and depositors.
The Reserve Bank of New Zealand (Covered Bonds) Amendment Bill improves information about covered bonds, which have become a source of funding for banks.
The bonds have "cover" in that they are secured against a pool of bank assets. They are controversial because the assets are not available to other investors if a bank collapses.
The bill provides for the Reserve Bank to maintain a register of banks' covered bond programmes and provides greater legal certainty for investors in the unlikely event of a bank defaulting.
"Providing a legislative framework will give investors greater legal certainty as to the treatment of cover pool assets in the unlikely event that the issuing bank defaults," Finance Minister Bill English said.The Reserve Bank imposes a limit on issuance of covered bonds, which balances the benefits of covered bond issuance against the impact on unsecured creditors.
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