Today the Senate has passed legislation to enable retail trading of Commonwealth Government Securities (CGS). This reform marks another milestone in the Government's banking reform agenda and is an important part of the Government's plans to develop a deep and liquid corporate bond market.
The global financial crisis highlighted the importance of Australian companies having a diversity of funding sources to mitigate funding liquidity risk.
A vibrant corporate bond market is also critical to increasing competitive pressure on bank lending rates to business. It will help to harness our national superannuation savings so we can domestically fund more productive investment in our economy, via both the banking system and the corporate sector, reducing our reliance on offshore wholesale funding markets.
An active retail CGS market is an important step in establishing a wider retail debt market by providing a visible pricing benchmark for investments retail investors may wish to make in corporate bonds.
It will also provide a low risk way for retail investors to familiarise themselves with fixed-interest securities as an asset class.
CGS are currently almost exclusively traded among institutional investors. The Bill passed today provides a legal framework enabling retail investors to participate in the CGS market and applies the investor protection regime in the Corporations Act to retail trading of CGS.
The Australian Office of Financial Management will be working with commercial partners including financial market operators to ensure that trading of CGS depository interests on financial markets accessible to retail investors can start in the near future.
A deep and liquid domestic corporate bond market could help to make corporate bond issuance commercially viable for medium-sized corporations, and provide larger corporations with an alternative market in which to issue bonds.
When the global financial crisis struck, the Government put in place immediate measures to secure Australia's financial system.
The Government built on these measures with a package of reforms to empower consumers, help smaller lenders to compete with major banks and secure the long-term safety and sustainability of our financial system.
Under these reforms, the Government banned mortgage exit fees and introduced a new 'tick and flick' service to give Australians the freedom to switch deposit accounts. The Government also introduced a mandatory one-page fact sheet for home loans to make it easier for consumers to shop around and assess the best value on offer.
Other reforms have helped secure funding for Australian banks, including the introduction of covered bonds and embedding the Financial Claims Scheme as a permanent feature of Australia's financial system.
These reforms are fostering competition in the banking sector, with the non-major banks increasing their home lending at more than three times the rate of the major banks in the year to August.
A competitive and sustainable banking system is an important part of the Government's broad economic agenda, and developing our local corporate bond market is an important part of this.