Australia’s Department of Treasury has opened consultation on draft Banking Regulations 2026 that would increase the share of an authorised deposit-taking institution’s (ADI) Australian assets that may be committed to covered bond cover pools from 8% to 12%. The draft would replace the Banking Regulation 2016 before it sunsets on April 1, 2027, while largely preserving existing financial claims scheme and unclaimed money rules. The higher cap would implement a recommendation from the Council of Financial Regulators’ August 2025 review into small and medium-sized banks, but would not be limited to those institutions. The review found that a higher cap would improve medium-sized banks’ access to longer-term, lower-cost funding, reduce rollover risks and broaden access to offshore investors. The proposed 12% limit seeks to balance those funding benefits against potentially greater losses for depositors and the Commonwealth if an issuing ADI fails. It would apply only to covered bonds issued on or after the new regulations commence. The draft would retain the financial claims scheme payment limit of AUD 250,000 per account-holder at a particular declared ADI, alongside existing rules on protected accounts, overpayment recovery and unclaimed money. Other amendments would simplify drafting and update the information requirements for the Australian Prudential Regulation Authority or a liquidator when establishing a replacement farm management deposit account.
Australia’s Department of Treasury consults on raising covered bond asset cap from 8% to 12% in banking regulations remake
Australia’s Department of Treasury is consulting on replacement banking regulations that would raise the covered bond asset cap from 8% to 12% for ADIs, applying to bonds issued from commencement. The proposal implements a Council of Financial Regulators recommendation intended to expand funding access, while balancing potential losses to depositors and the Commonwealth if an issuer fails. The remake would otherwise largely preserve existing rules, including the AUD 250,000 financial claims scheme payment limit per account-holder at a particular declared ADI.