APRA has confirmed its prohibition of covered bonds.

Covered bonds are secured ADI funding structures whereby an ADI issues debt instruments in conjunction with a cover pool of the ADI’s assets, which are held by the ADI or in a separate vehicle for the benefit of bond investors in the event the ADI is unable to meet its obligations on the debt instruments.

APRA’s objection to covered bond structures is that, in substance, they subordinate the interests of depositors of ADIs to the interests of the covered bond holders.