ECBC Chairman’s Note 27th ECBC Plenary Meeting, Vancouver, 18 April 2018

27 April 2018

On 18 April 2018, the ECBC held the 27th – and first Global – edition of its Plenary Meeting in Vancouver, Canada, bringing together over 170 key stakeholders in the Industry, including numerous representatives of national authorities, international bodies and investors, to consider the key issues and challenges currently facing the sector. This event was organised in institutional partnership with the World Bank Group, the European Bank for Reconstruction and Development (EBRD), the Canada Mortgage and Housing Corporation (CMHC), and Euromoney Conferences. Hereafter is the text of the ECBC Chairman, Niek Allon’s, opening address to the 27th Plenary meeting.


Ladies and gentlemen, good morning.


On behalf of the members of the European Covered Bond Council, as the Chairman of the ECBC it gives me great pleasure to welcome you all to Vancouver for the 27th European Covered Bond Council Plenary meeting.


I would like to begin by expressing our gratitude to our hosts, the Canadian covered bond community: Bank of Montreal; CIBC, Desjardins; National Bank; RBC; Scotiabank; and TD Bank. I would also like to thank the Canada Mortgage and Housing Corporation and its staff for their support and hospitality, not to mention first-class assistance with the preparations for today’s event. Similarly, I would like to thank our other partners, the European Bank for Reconstruction and Development, the World Bank Group and Euromoney Conferences, each of which has played a key role in helping to develop the structure for today’s discussions. Finally, I would like to thank JP Morgan for its kind support of this evening’s dinner. Thank you all.


The Agenda for today’s meeting seeks to address the major issues currently occupying our industry at not just a European but a global level, and our Secretary General will provide a broader overview of these in a few minutes.


In this context I would like to take this opportunity to thank all the speakers, panellists, authorities, guests and ECBC members – and hopefully future ECBC members – present today. Your participation remains a clear demonstration of the willingness and ability of our industry’s core stakeholders to be united, well-coordinated and to contribute proactively to the development of a Capital Markets Union founded upon a strong market consensus.


As I said, this is the 27th edition of the ECBC Plenary Meeting. The 26 previous editions have all been held in Europe given the history of covered bonds and the origins of the ECBC as a European focused body. In recognition of the fact that the asset class has now become a core long-term funding tool of banks around the world with regulations affecting covered bonds increasingly debated and set across jurisdictions, this is the first Plenary Meeting specifically targeted at a wider, international audience. The overall aim of our event is to facilitate broad debate on the design of a harmonised covered bond legislative framework.

Against this background, today’s meeting has two key objectives:

  • Firstly, to provide a forum in which the recently published European Commission legislative proposal on covered bonds can be presented to the international covered bond community as a potential global benchmark for the asset class. This is especially so in the context of the Basel Committee’s recent discussions regarding “Basel IV”.
  • Secondly, to enhance global transparency on current regulatory debates affecting covered bonds and, through this, help stimulate global investors’ demand for both traditional covered bonds but also energy efficiency or green bonds.  This will be the key concern of this afternoon’s final panel focusing upon the role that the EMF-ECBC led Initiative can play as a catalyst for such assets.

So why Canada? Well, besides being a beautiful country, Canada is a perfect example of the internationalisation of the covered bond asset class, representing one of the most successful covered bond markets outside Europe, with nearly 10% of the entire mortgage market funded by covered bonds.


Since the first Canadian covered bond was issued by Royal Bank of Canada in 2007, outstanding issuances have grown steadily. Further growth in issuances followed after the passage of a dedicated covered bond legislation that established a statutory covered bond regime in Canada. As a result, record issuance occurred in 2016 at just over €100 billion. This rapid growth over the last few years has fundamentally shifted the Canadian banks’ wholesale term funding profile. In 2013, 10% of the banks’ wholesale term funding was done through unsecured debt, and in 2016, covered bonds accounted for 35% of total term funding.


With a large overseas market, covered bond issuances are largely targeted outside of Canada to broaden the sources of funding geographically.  The domestic market has also emerged, with issuances to date from Royal Bank of Canada, Toronto Dominion Bank and Bank of Montreal. While 2017 was a more muted year in issuances, looking forward, covered bonds remain a strategic source of funding for Canadian issuers, while the Canadian bail-in regime enters into the regulatory landscape. We will be hearing more about the bail-in regime later this morning.


Canada is but one example of such internationalisation. At the end of 2016 covered bonds represented a €2.5 trillion global asset class. Initially dominated by European issuers, the product is also becoming increasingly relevant in markets such as Australia, New Zealand, Singapore, and South Korea, and there are numerous other countries expected to go live in the near future.


The global financial crisis proved that covered bonds can be a resilient source of funding in times of wider market turmoil. Even in the European countries most affected by the crisis, such as Italy and Spain, banks were able to tap the covered bond market despite other sources of wholesale funding were closed.


Issuers and regulators outside the traditional European markets duly noted banks’ ability to issue covered bonds in time of stress, and supported new or amended legislation governing the issuance of covered bonds. The issuance of covered bonds picked up quickly in most of these countries once the dedicated legislation was approved.


We believe that market conditions will remain supportive for covered bonds in new jurisdictions in the next few years, despite the diminishing monetary support from central banks. Moreover, an expected increase in mortgage lending will drive bond supply by increasing lenders’ need for wholesale funding and the availability of eligible collateral. Finally, the legislative and regulatory environment remains favourable to covered bonds.


This internationalisation of the market is reflected in the membership of the ECBC, which, although still retaining a European core focus, has increasingly welcomed members from non-European markets or with an overtly international focus in recent years and we are delighted to see many of them here today. This is also reflected in the recent establishment by the ECBC of its Global Issues Working Group and the year-on-year growth in attendance at the ECBC’s Asian Covered Bond Roundtable held in Singapore each spring.


Returning our focus to Europe, 2018 will be a pivotal year for the sector. On the 12th of March the European Commission published its long-awaited legislative proposal for covered bonds – commonly referred to as the Covered Bond Directive – which is intended to help encourage the development of a Capital Markets Union (CMU) in Europe by promoting alternative sources of financing and removing barriers to cross-border investments.


In its proposal, the European Commission puts forward common rules for the asset class, which some see as being currently fragmented along national lines with differences across European Union Member States. Again, something that we will discuss later this morning. The Commission’s proposed rules are based on high-quality standards and best practices, and aim to enhance the use of covered bonds as a stable and cost-effective source of funding for credit institutions, especially where markets are less developed. They are also intended to give investors a wider and safer range of investment opportunities. At the same time, the proposal seeks to reduce borrowing costs for the economy at large. The Commission estimates that the potential overall annual savings for EU borrowers would be between EUR 1.5 billion and EUR 1.9 billion.


The EMF-ECBC welcomes the European Commission’s initiative on covered bonds. We are particularly appreciative of the long and careful consideration given by the European Institutions in preparing the draft framework for the key qualitative characteristics of the covered bond asset class, and to maintaining its fundamental role in the long-term funding strategies of European lenders. We also welcome the proposal’s recognition of the fundamental role played by the Covered Bond Label as a globally recognised benchmark in improving transparency, harmonisation and setting high qualitative standards.


Furthermore, we are very grateful for the constructive dialogue that has taken place to date between the Industry and the EU Institutions on this crucial topic for the Union. In this context, I am delighted that Didier Millerot, Head of the Unit leading the European Commission’s work on the Directive, joins us today to provide greater clarity on the Commission’s views here and the next steps. As we move forward with the implementation of the Directive, the Industry stands ready to continue its key role in supporting the European Institutions’ push for a strong EU covered bond framework to improve the efficient funding of the real economy and to contribute to the further development of covered bonds across the EU, and beyond.


This being said, as the proposal starts its journey through the European Union’s legislative process, it is of paramount importance that the final outcome strikes the right balance between safeguarding the smooth functioning of the market, both now and in the future, and upholding the clear qualitative standards for which the covered bond asset class has come to be recognised by investors and legislators around the globe.


Therefore, both the globalisation of covered bonds and regional initiatives – such as the EU Covered Bond Directive and the Covered Bond Label – affecting the asset class are likely to feature prominently in discussions today and tomorrow at the first Euromoney / ECBC North American Covered Bond Forum.


The Plenary is the key discussion forum for our organisation where ECBC members, representatives of national authorities, the European Institutions and other key stakeholders come together to brain-storm and to develop future actions and initiatives. Together we seek to enhance market standards and investor confidence in the covered bond asset class. Therefore, we invite all of you to play an active role in today’s discussions.


To open today’s debates and provide the context in which we meet, I am delighted to welcome Jeremy Rudin, who is Canada’s Superintendent of Financial Institutions, and who will share with us his views on the state of the Canadian covered bond market and its position in a global setting.


I thank you for your attention and trust that you will find today’s event informative.


Please click here to access the speech which followed by Jeremy Rudin, Canada’s Superintendent of Financial Institutions.