Australia Office of Financial Mnanagement to invest in mortgage-backed securities

AUSTRALIA'S Treasurer has said the Government will invest in residential mortgage-backed securities (RBMS) to boost competition.

Wayne Swan today said that the Australian Office of Financial Management, which manages the country's debt program, will invest in AAA-rated RMBS.

The AOFM will invest in 2 tranches of $2 billion each of RBMS, the Treasurer said, speaking after the Australian stock exchange had closed.

“The actions are about making a strong banking system even stronger and about making our banking system much more competitive,” Mr Swan said.

“Boosting competition is something the Government has been emphatic about.

“We need to have a competitive mortgage market so people under financial pressure can get a fair go.

“This is an important measure to introduce competition into the mortgage market over time.”

 

Can someone explain why the government buying mortgage backed securities is going to increase competition?

I can see how it would increase confidence but not increase competition...

Cheers,

Dan

 

Found it:

"In response to the funding crunch, he announced yesterday that the Federal Government would pump $4 billion of taxpayer money into the struggling non-bank financial sector in a bid to ensure its survival as a competitive force against the big banks."

It makes a little more sense now

$4b bail-out, but don't bet on banks to pass on rate cuts - National

 

It is almost impossible for non-bank lenders to obtain overseas wholesale funding and the regional banks are also finding it extremely difficult to do the same. Bascially any financial institutions which don't have an "AA" rating are at a great disadvantage to the Big 4 and either can't get funding at all and if they can they pay a heck of a lot more for it. St George probably doesn't quality because it will have access to Wespac's cheaper funding with the merger. Hence part of the reason no doubt why they are keen on the merger.

So from what I gather the Gov't is going to make funding available to regional and non-bank lenders to maintain competition during this difficult phase. The Gov't knows that the public is getting fed up with the Big 4 banks getting more and more power and over time without competition we will end up back with higher rates as the major banks dominate the market and increase their margins back to where they were over a decade or so ago. So the Gov't needs to be seen to be promoting competition and rightly so in my mind.

Cheers - Gordon

 

Yes this is a problem for non bank lenders and this is the reason some have increased their variable rate to 10%.