Reader alert: Look for an analysis of covered bonds in the June edition of Advisor’s Edge Report.

Fulfilling a promise made in the March 2010 budget, the Department of Finance has published a consultation paper that proposes a legislative framework for Federally Regulated Financial Institution (FRFI) to issue covered bonds. Covered bonds are debt securities backed by cash flows from mortgages or public sector loans.

While OSFI has limited covered bond issues by deposit-taking FRFIs to 4% of total assets, this proposed statutory regime will likely raise this limit. The comment period on the paper ends June 10.

The government intends to establish a legislative framework that strikes an appropriate balance between the interests of covered bondholders and those of other creditors, secured or unsecured.

Since 2007, when a Canadian bank first issued a covered bond, issuances in Canada have increased to over $30 billion.

To comment on Finance’s consultation paper, click here.