The Australian government's two key economic agencies yesterday reiterated their view that the market for mortgage-backed securities would recover, and that there was no case for any form of government sponsored mortgage funding agency.In his opening remarks to the House of Representatives Standing Committee on Economics inquiry into competition in banking, Reserve Bank deputy governor Ric Battellino yesterday said: "Some commentators have recently been concerned that the financial turmoil of the past year has lessened the degree of competition."This is because the turmoil has made it harder for lenders who fund themselves in capital markets to compete. Some have argued that this requires some type of government intervention in the market, such as setting up a government guaranteed securitisation vehicle."While it is true that lenders relying on securitisation have lost market share in recent months, it has always been the case that some phases of the economic cycle favour some forms of financing more than others."Securitisation has been strongly favoured over the past five years of very low global interest rates. Now it is at a disadvantage."Our view of recent events is that they are cyclical in nature rather than a permanent change to the structure of the market, in the sense that when market conditions settle securitisation will pick up again. "As such, it would be premature at this stage to embark on proposals such as the setting up of new government bodies to support certain forms of financial activity."Jim Murphy, executive director of the markets group at Treasury told the committee that "Treasury strongly disagrees with this in that the treasurer has ruled out establishing a government body of this nature."Murphy said that "We think it's important to note that underlying Australia's RMBS markets are high quality assets and it is expected that once some normality returns to the market this will assist in accumulating demand for RMBS and restoring this funding channel."The Australian Securitisation Forum has proposed a series of measures, including the creation of a liquidity program to be run by the Australian Office of Financial Management; expansion of the Reserve Bank's RMBS repurchase arrangements; establishment of the government-guaranteed scheme; and the creation of an RMBS index to appeal to fund managers.The centrepiece is the so-called agency model, a government supported securitisation scheme based on the Canadian Mortgage and Housing Corporation's Mortgage Backed Securities program. Approved lenders sell eligible mortgages to the Canada Housing Trust which issues AAA rated Canada Mortgage Bonds. The bonds are secured by government guarantee and the underlying mortgage-insured property. The ASF proposal is for $10 to $20 billion of funding each year. Economist Joshua Gans and Rismark chief executive Christopher Joye have developed a similar proposal, which has been labelled Aussie Mac.