The Reserve Bank has ruled New Zealand's banks will be limited in issuing covered bonds to 10% of their total assets.
Covered bonds raise money against a pool of mortgages which are ring-fenced from other assets on a bank's balance sheet.
They are banned in Australia, but have been used widely in Europe for many years.
Reserve Bank deputy governor Grant Spencer says an initial limit of 10% will allow banks to develop covered bond programmes while providing a conservative ceiling on issuance in the short term
The limit will be reviewed every two years.
