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Tuesday, 3 February 2009
Page: 157


Senator Bob Brown asked the Minister for Superannuation and Corporate Law, upon notice, on 16 October 2008:

In regard to the $8 billion worth of AAA rated residential mortgage-backed securities the Government has directed the Australian Office of Financial Management to purchase from non-authorised deposit-taking institution lenders, and given that the credibility of the credit rating agencies has recently been undermined by their role in the financial crisis: How is the Government ensuring that the securities genuinely deserve their AAA rating and are not putting public funds at undue risk.


Senator Sherry (Minister for Superannuation and Corporate Law) —The answer to the honourable senator’s question is as follows:

On 26 September and 12 October 2008 the Government announced that the Australian Office of Financial Management (AOFM) will purchase residential mortgage-backed securities (RMBS) to support competition in Australia’s mortgage markets. Up to $8 billion is available for investment, with at least $4 billion to be allocated to issuers/originators that are non-authorised deposit taking institutions.

The AOFM requires that the RMBS it purchases have AAA credit ratings from at least two of the major credit rating agencies. It also has specified minimum requirements for the securities which help ensure that they are of high credit quality. These requirements are detailed in AOFM Operational Notice No. 10/2008 of 13 October 2008 which is available on the AOFM web site (www.aofm.gov.au).

The credit quality of RMBS depends on the characteristics of the mortgage assets that back the securities, together with the credit support arrangements for the securities, including the structure of the various classes of securities within each issue and insurance coverage. The AOFM considers these arrangements as part of its due diligence assessments of proposed purchases. It also required monthly reporting on the composition of the mortgages supporting the securities purchased and regular reviews of the ratings of the issues by the credit rating agencies.

I announced the Australian review into credit rating agencies on 22 May 2008. The outcomes from the review were announced on 13 November 2008. Further information can be obtained from the media release which I issued concluding the review. It can be obtained from my Ministerial web site. Further information about the review is also available in the website of the Australian Securities and Investments Commission.