Press release

“Covered Bond Industry reaches important consensus on the four most critical issues to be addressed in the current legislative discussions on an EU Framework for Covered Bonds”

17 September 2018

“Covered Bond Industry reaches important consensus on the four most critical issues to be addressed in the current legislative discussions on an EU Framework for Covered Bonds”

Brussels, 17 September 2018 – For immediate release


The European Mortgage Federation – European Covered Bond Council (EMF-ECBC) would like to take this opportunity to provide an update to its press release published on 4 September 2018, on market feedback on the draft Report prepared by MEP Bernd Lucke for the European Parliament’s Economic & Monetary Affairs Committee (ECON) on the European Commission’s proposals for a Covered Bond Legislative Framework.

During its meeting in Munich on 11 September 2018, the ECBC Steering Committee analysed the feedback received on MEP Lucke’s draft Report and discussed the potential implications for the current, well-functioning markets. Indeed, we strongly believe that a European covered bond legislative framework should reinforce quality, add value for issuers and investors, and safeguard the macroprudential characteristics of covered bonds as a long-term funding instrument for the real economy and a crisis management tool in stress scenarios. To this end, the Steering Committee identified the following common areas, which are deemed to be the most critically important to the covered bond industry:

  1. Directive scope/asset eligibility (Art. 6): The ECBC is concerned about the potential watering-down of the quality of the covered bond asset class and the risk of contagion which could result from the proposed two-tier classification. A careful balance must be struck to safeguard the perimeter of traditional (CRR & UCITS compliant) covered bonds, whilst recognising non-traditional asset classes, beyond the traditional perimeter, i.e. European Secured Notes (ESN). Furthermore, the name “Ordinary” Covered Bonds is considered inappropriate and potentially confusing.
  2. Derivatives (Arts. 11 & 15): The ECBC would like to reiterate the importance of derivatives to mitigate currency and interest rate risk. The proposals to essentially limit the use of this instrument to counter parties with minimum credit quality step 1 rating could have serious implications in the event of a stress scenario as there would be fewer eligible counter parties available which could have a negative effect and increase risk for investors.
  3. Extendable Maturities (Art. 17): The ECBC is greatly concerned about the proposed risk weight differential for extendable maturity covered bonds, which will distort an otherwise well-functioning and well-accepted segment of covered bond markets. The ECBC is continuing its commitment to define market best practice in this area.
  4. Liquidity Buffer (Art. 16): The ECBC recognises the efforts of the EU Institutions to avoid concerns about double-counting between the Liquidity Coverage Ratio (LCR) at bank level and the 180-day liquidity buffer in the cover pool. A potential solution to this issue could be determined at Member State level, according to national best practice. A future revision of the LCR would represent an opportunity for a more harmonised solution.

The ECBC invites the EU Institutions to carefully consider these common areas of concern.

Commenting on this development, Luca Bertalot, EMF-ECBC Secretary General stated:

On the occasion of its Plenary meeting in Munich and after intensive debate, the Covered Bond Industry reached an important consensus on four key areas of concern with the potential to severely impact on the quality of the asset class moving forward. The Industry stands ready to act as a catalyst to further improve the harmonisation of best practices and to, in turn, facilitate the implementation of the Directive by Member States in due course to further reduce market fragmentation”.

The market feedback collected by the EMF-ECBC can be downloaded here.

The European Commission’s Proposals for a Directive and a Regulation amending the Capital Requirements Regulation (CRR) can be downloaded here.

The draft ECON Reports prepared by MEP Lucke on the European Commission’s Proposals can be downloaded here (Directive) and here (Regulation).

Luca Bertalot
Secretary General
Tel: +32 2 285 40 35