Securitised assets move
In a move that could also support competition in home lending, the Australian Prudential Regulation Authority on Monday flagged changes to bolster the market for lower-risk securitised assets.
Securitisation refers to the practice of selling bundles of assets, such as mortgages, to investors.
In the United States it played a key role spreading sub-prime debt before the 2008 global financial crisis. But Australia's sector has posted relatively low default rates and regulators see it as a valuable alternative to volatile short-term money markets.
APRA's executive general manager Charles Littrell said the regulator was developing a new framework that would reduce constraints to investing in securitised assets that were "obviously safe". At the same time it will introduce "substantial disincentives" to investing in riskier assets.
Frequently Asked Questions about this Article…
Securitisation in Australia involves selling bundles of assets, like mortgages, to investors. This process helps banks reduce their reliance on short-term money markets and provides a stable funding source.
APRA is overhauling the securitisation market to help Australian banks reduce their dependence on external funding and to support competition in home lending by bolstering the market for lower-risk securitised assets.
Securitisation offers everyday investors the opportunity to invest in bundles of assets, such as mortgages, which can provide a stable return and diversify their investment portfolio.
APRA is developing a new framework to reduce constraints on investing in 'obviously safe' securitised assets while introducing disincentives for investing in riskier assets.
In the United States, securitisation played a key role in spreading sub-prime debt, which contributed to the 2008 global financial crisis. However, Australia's sector has maintained relatively low default rates.
While securitised assets can offer stable returns, there are risks involved, especially with higher-risk assets. APRA aims to introduce disincentives for investing in these riskier assets to protect investors.
By bolstering the market for lower-risk securitised assets, APRA's changes could support increased competition in home lending, potentially leading to better rates and options for borrowers.
APRA is a financial regulator in Australia that oversees the stability and efficiency of the financial system. It is responsible for implementing changes to improve the securitisation market and reduce banks' reliance on volatile funding sources.
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