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Recent Innovation in the Regulation of Covered Bonds in Europe: Who Will Benefit from the New Legislative Framework?

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Banking and Beyond

Abstract

Covered bonds are debt instruments issued by financial institutions that represent the link between the funding strategies of banks and the capability of originating high-quality assets, which in turn enable cost-efficiently funded lending to the real economy. To date, the regulation of covered bonds has taken place at the national level, resulting in different national approaches regarding key technical issues. The EU (European Union) Parliament and the Council of the European Union have recently harmonised national rules on their issuance by providing common definitions, characteristics and regulations with a view to the use of a European trademark. In this chapter, we intend to explore the new European characteristics of these financial instruments and the possibilities for banks and investors to take advantage of the new regulations.

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Notes

  1. 1.

    German mortgage banks introduced the so-called “Jumbo Pfandbrief” with the purpose of internationalising their funding base. In contrast to traditional Pfandbriefe, Jumbo Pfandbriefe were provided with a rating and, even more importantly, with a high degree of liquidity. The two main components used to bolster liquidity were a minimum issue size and a market-making obligation by the underwriting banks.

  2. 2.

    Proposal for a Directive of the European Parliament and of the Council on the issue of covered bonds and covered bond public supervision and amending Directive 2009/65/EC and Directive 2014/59/EU. The proposal for a directive is complemented by a proposal for a regulation amending EU Regulation No. 575/2013 (the Capital Requirements Regulation).

  3. 3.

    EU Parliament legislative resolution of 18 April 2019 on the proposal for a directive of the European Parliament and of the EU Council on the issue of covered bonds and covered bond public supervision and amending Directive 2009/65/EC and Directive 2014/59/EU.

  4. 4.

    EU Directive 2019/2162 amending Directives 2009/65/EC and 2014/59/EU on the issue of covered bonds and covered bond public supervision and EU Regulation 2019/2160 amending Regulation (EU) No. 575/2013 regarding exposures in the form of covered bonds were published on December 18th, 2019, in the Official Journal of the European Union (OJ).

  5. 5.

    See ECBC, The European Covered Bond Fact Book, August 2007.

  6. 6.

    For a more detailed analysis of the relevance of the current debate, see Moore, P., Covered bonds debate: Covered bond issuers take on the global market, in Euromoney, June 2007.

  7. 7.

    EBA, Report on EU covered bond frameworks and capital treatment, July 2014.

  8. 8.

    EC, Covered bonds in the European Union, Consultation document, 2015.

  9. 9.

    EC, Covered Bonds in the European Union: Harmonisation of legal frameworks and market behaviours’ May 2017.

  10. 10.

    EU Parliament, ‘Own-initiative report on Covered Bonds’, June 2017.

  11. 11.

    Proposal for a Directive of the European Parliament and of the Council on the issue of covered bonds and covered bond public supervision and amending Directive 2009/65/EC and Directive 2014/59/EU. The proposal for a directive is complemented by a proposal for a regulation amending EU Regulation No. 575/2013 (the Capital Requirements Regulation).

  12. 12.

    EU Parliament legislative resolution of 18 April 2019 on the proposal for a directive of the European Parliament and of the EU Council on the issue of covered bonds and covered bond public supervision and amending Directive 2009/65/EC and Directive 2014/59/EU.

  13. 13.

    EU Directive 2019/2162 amending Directives 2009/65/EC and 2014/59/EU on the issue of covered bonds and covered bond public supervision and EU Regulation 2019/2160 amending Regulation (EU) No. 575/2013 regarding exposures in the form of covered bonds were published on 18 December 2019, in the Official Journal of the European Union (OJ).

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Authors and Affiliations

  1. Department of Business Administration, University of Verona, Verona, Italy

    Giusy Chesini

  2. Department of Management, Economics and Quantitative Methods, University of Verona, Verona, Italy

    Elisa Giaretta

Authors
  1. Giusy Chesini
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  2. Elisa Giaretta
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Correspondence to Giusy Chesini .

Editor information

Editors and Affiliations

  1. Department of Management, Ca’ Foscari University of Venice, Venice, Italy

    Caterina Cruciani

  2. Department of Management, Ca’ Foscari University of Venice, Venice, Italy

    Gloria Gardenal

  3. Department of Management, Ca’ Foscari University of Venice, Venice, Italy

    Elisa Cavezzali

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Chesini, G., Giaretta, E. (2020). Recent Innovation in the Regulation of Covered Bonds in Europe: Who Will Benefit from the New Legislative Framework?. In: Cruciani, C., Gardenal, G., Cavezzali, E. (eds) Banking and Beyond. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-45752-5_4

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  • DOI: https://doi.org/10.1007/978-3-030-45752-5_4

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