Bankers have found an ally in their campaign to have the Australian Prudential Regulation Authority drop its ban on the issue of covered bonds by Australian banks. The House of Representatives Standing Committee on Economics has included a recommendation in its report on banking competition that Treasury examine the appropriateness and feasibility of allowing local ADIs to issue the controversial securities.Local bankers see access to the European covered bond market as another important source of liquidity in the credit crunch but APRA has rebuffed all approaches for a review of its policy.Speaking at yesterday's Australian Securitisation Forum conference in Sydney, the chair of the House Economics Committee Craig Thomson said the committee's view was that "there was merit in ADIs being able to issue covered bonds." A covered bond differs from an RMBS or other asset-backed security in that the security is issued directly by the financial institution and the asset backing it remains on the bank's balance sheet.Another difference is that the contractual maturity of the issue is realised. As mortgages are paid out and leave the pool the issuer tops up the pool with new mortgages.A "cover pool" of the issuer's assets is held by the issuer or in a separate vehicle for the benefit of the bond investors in the event the issuer is unable to meet its obligations on the debt instruments. APRA's view is that the structure subordinates the interests of depositors to the interests of the covered bond holders. The Banking Act requires that if a deposit-taking institution becomes unable to meet its obligations the assets of the ADI are to be available to its deposit liabilities ahead of all other liabilities.About 15 or 20 per cent of the European mortgage market is funded by covered bonds. Thomson said there was uncertainty about how such issuance would fit into the current regulatory frameworkThe committee said that if the government saw merit in giving Australian banks access to the covered bond market it would have to look at changes to the Banking Act to deal with APRA's concerns.Some of the other recommendations in the committee's report, which was released at the end of last week, included a call for the Reserve Bank to consider extending the maturity of repurchase agreements, a recommendation that the government consider giving investigative powers to the Australian Competition and Consumer Commission, and support for the Australian Law Reform Commission's proposals for change to the credit reporting system.A few of the recommendations were token at best. The committee recommended that card schemes be included in the banks' account switching package but there was no comment on the shortcomings of that package. It recommended that entry and exit fees on loans be "more transparent" but gave no guidance on how the problems encountered with the failed attempt to develop a comparison rate in the Credit Code could be avoided next time.And it recommended that the Australian Securities and Investments Commission include "a glossary of standardised financial terms in simple language" on its consumer