Despite the high cost of their initial covered bond issues, bankers yesterday declared the Government's decision to change the Banking Act to allow for the issue of covered bonds a success. The program has achieved the goal of maintaining access to capital markets during times of stress.Westpac group treasurer Curt Zuber told delegates at a Finsia covered-bond seminar that the second half of 2011 was a more challenging period than the months after the collapse of Lehman Brothers in October 2008.Zuber said: "Covered bond programs have provided exactly what the industry, bureaucrats and regulators wanted them to do. They gave us some funding options in a very challenging market," he said.ANZ's head of wholesale funding, Luke Davidson, said: "The covered bond initiative has done what it was designed to do."An amendment to the Banking Act was passed last October allows approved deposit-taking institutions to issue securities that give investors a preferential claim on a pool of assets (the cover pool).Since October the big banks have issued A$17 billion in covered bonds, made up of a mix of local and foreign currency issues. According to the Reserve Bank, the average cost of domestic covered bond issues was 170 basis points over the swap rate and the cost of offshore covered bond issues was 210 basis points.The executive director of the financial institutions group at UBS, Scott McMullen, said: "At the time it was the cheapest source of funds."McMullen said the market for Australian covered bonds was still developing, both here and overseas.Zuber said: "Offshore we are getting more people on our approved list. We see that list continuing to grow. "Our local transaction had very widespread participation."Under the covered bond rules, an ADI must limit the value of its cover pool to a maximum of eight per cent of its assets in Australia.Zuber said that encouraging as the initial responses of covered bonds' investors were the issuance cap meant the senior unsecured term-debt market would remain the main game."We have seen the beginnings of a thaw in that market. There are good signs," he said.Davidson said: "Covered bonds will make up about 40 per cent of our [wholesale] funding this year. You will see a skew to covered bonds for a couple of years and then it will drift back."