Insights on Covered Bonds: 250 Years of European History

8 January 2019

The year 2019 marks an important milestone for the European Covered Bond industry. Exactly 250 years ago, Frederick the Great, King of Prussia, has introduced the “Silesian Landschaft model”, legal basis for the German “Pfandbrief “.

By combining mortgages on property and bonds, Frederick the Great created an essential mechanism for providing safe access to long term capital to finance projects for the benefit of the community and the welfare of its citizens. In subsequent years, this visionary model was adopted throughout Europe, often as a response to economic crisis and its reputation for safety and stability was established. In Denmark, in 1797, the first bonds, Realkreditobligationer, were issued to finance the reconstruction of Copenhagen following the great fire in 1795.

By 1852 in France, the mobilisation of capital came of age with the issuance of Obligations Foncières, and many of the covered bond features we would recognise today featured strongly in the bonds offered to the public at that time.

In the past 250 years, the covered bond market has built on those foundations, created a rich history of strength, stability and safety, whilst meeting society’s ever changing needs for finance to create a better future for all. As we look to the future covered bonds continue to be at the heart of Capital Markets Union and remain as essential to the financial system as they were for Frederick the Great. The covered bond family continues to expand into new markets, providing a global solution to local financing needs, and also continuing to develop innovative products to support a more sustainable environment.