ECBC Global Concept Note on Third Country Equivalence for Covered Bonds

An Industry concept note on third country equivalence for a global implementation of the Covered Bond Directive

The implementation of the Basel Committee on Banking Supervision’s (BCBS) framework, together with a common legislative Directive on Covered Bonds in the 30 countries of the European Economic Area (EEA), is radically revolutionising the Capital Markets Infrastructure of the Old Continent, providing new common crisis management tools for policy makers and market participants, and an efficient financial asset to support the real economy whilst facilitating the transition to a greener world. For over 250 years, covered bonds have proven to be an efficient debt instrument enabling banks to mobilise private sector means and capital towards long-term investment with a wide public benefit and issue real estate loans and public-sector debt. During the years of market turmoil at the beginning of the 21st century, covered bonds demonstrated a strong degree of resilience.
Throughout the crisis, they played a pivotal role in bank wholesale funding, providing lenders with a cost-effective and reliable long-term funding instrument for mortgage and public-sector loans. The Industry continues to build on the lessons learnt from the financial crisis while maintaining a focus on the essential features and qualities that have made the covered bond asset class such a success story.

Today, the ongoing energy crisis and the need to renovate the housing building stock are now, more than ever, opening up new frontiers for housing finance and covered bonds at both EU and international levels. Moreover, with the adoption of the Covered Bond Directive in the European Economic Area, further clarity as to what a covered bond is has also been achieved. The covered bond financing instrument is being exposed to critical evolutions which may bring about both new opportunities and new risks. The covered bond market is faced with new regulatory, policy and supervisory developments, while market innovation, the continuous process of globalisation and national implementation of the covered bond concept will also leave their mark on the asset class.

With the approval in Morocco of the first African Covered Bond law in September 2022, four continents have now introduced covered bond frameworks, a development which is opening perspectives for the development of a new investor base at the global level. The third country equivalence regime of the Covered Bond Directive represents an opportunity to harmonise the policy landscape and reinforce the regulatory treatment of the asset class from a prudential perspective. In parallel, the Covered Bond Label has already helped enormously in harmonising the covered bond landscape, particularly in the area of disclosure, and provides a unique quantitative database and qualitative benchmark, with more than €2 tr. of bonds outstanding at global level.

In view of these considerations, the covered bond industry firmly believes that, in any evolution, there is a clear need to preserve the key nature of the product as a crisis management tool rooted in robust qualitative and macroprudential characteristics, which are the basis for ensuring a regulatory recognition at global level.


To develop synergies between traditional, new and emerging covered bond markets, and join forces to develop of a more level playing field for all at a global level, in 2015 the European Covered Bond Council (ECBC) established its Global Issues Working Group (GIWG). To date, the work undertaken by the GIWG has been instrumental in ensuring a proper recognition of the macro-prudential value of the covered bond asset class while securing an appropriate, homogenous and cross-border regulatory treatment by different jurisdictions at a global level. In September 2022, the ECBC Steering Committee mandated the GIWG to elaborate a concept note on third country equivalence, to act as a roadmap helping global authorities and stakeholders in aligning policy and market best practices around the Covered Bond Directive.

To this end, ECBC members have identified an important role to be played by the Working Group as a discussion forum for exchanging market best practices and as an educational platform for issuers and global investor communities. The overarching aim of the Working Group is to enhance transparency and convergence, and to ensure that there is a progressive common understanding of the covered bond concept, with similar market solutions and infrastructures, and more importantly, comparable regulatory treatment. In this context, the Working Group has been looking into the following topics via dedicated topical Work Streams:

Looking back over recent years, it is clear that the covered bond space has been fundamentally impacted by major waves of monetary policy, supervisory review and regulatory change, which are having significant consequences for the long-term financing and housing finance sectors.

At EU level, for example, the Capital Markets Union (CMU) initiative, which is intended to ensure the capability of the financial services sector to support the growth agenda and provide long-term financing to the real economy, has identified the following areas of reflection:

  • Striking the right balance, in terms of a level playing field, between international banks operating in the European Union and European actors operating both internationally and domestically.
  • Carefully examining the market impact of several key regulatory developments and trying to secure the European banking pillars in the Basel Committee debates (i.e., Net Stable Funding Ratio (NSFR), risk weighting, capital floors framework, leverage ratio).
  • The role of European lenders in the framework of housing and of small and medium sized enterprise (SME) financing, and lending to the real economy is becoming increasingly multi-faceted.
  • The role of covered bonds and the Industry’s firm commitment to achieve a higher degree of harmonisation, in line with EU objectives and market preferences.
  • Developing energy efficient mortgages and green covered bonds for the benefit of EU citizens and the environment.

Moreover, at the end of 2019 the EU adopted the Covered Bond Legislative Package, comprising a Covered Bond Directive and a Regulation amending Art. 129 of the Capital Requirement Regulation, namely the article focusing on covered bonds. The Directive entered into force on 8 January 2020 and became fully effective on 8 July 2022. Throughout the 18-month implementation period, which brought both new risks and new opportunities to covered bond markets at European and more global levels (see section III for a more detailed analysis), the ECBC remained – and remains today – committed to ongoing and regular liaison with the EU institutions regarding this key piece of legislation.

Covered bonds sit at the heart of the European financial tradition, having played a central role in funding strategies for the last two centuries. The strategic importance of covered bonds as a long-term funding tool is now recognised at a global level. In this context, Armenia, Australia, Brazil, Canada, Morocco, New Zealand, Singapore, and South Korea have implemented covered bond legislation in recent years. Major jurisdictions including Chile, India, Japan, Mexico, Panama, Peru, South Africa and the United States, are either in the process of adopting covered bond legislation or are investigating the introduction of covered bonds.

The outstanding amount of covered bonds rose by EUR 31 bn. to EUR 2.94 tn. at the end of 2021. This was the fourth consecutive year of growth and set a new record, taking over from 2020. However, the pace of growth in the amount outstanding slowed to 1.1% in 2021, down from 7.4% and 5.1% growth in 2020 and 2019, respectively. In contrast to 2020, the increase largely stemmed from issuance of publicly placed covered bonds (+EUR 32 bn.) in 2021, with issuance of privately placed covered bonds (which includes retained covered bonds) declining by EUR 1.3 bn. This clearly reflects that, in 2021, banks started to rely more heavily on capital market funding, rather than cheap central bank borrowings offered after the outbreak of the COVID-19 pandemic. Overall, the figures once more underline the significant importance of covered bonds as bank funding tool around the globe.


The top five countries ranked by size of outstanding covered bonds (see Figure 1) in 2021 remained unchanged from 2020, with Denmark (EUR 455 bn.) retaining the top spot, followed by Germany (EUR 391 bn.), France (EUR 350 bn.), Spain (EUR 243 bn.) and Sweden (EUR 242 bn.).

Figure 1: Total Amount of Outstanding Covered Bonds by Country and Annual Change End 2021

Source: ECBC Fact Book 2022, ABN AMRO (growth rate of Brazil is 138%, not shown in graph)

At the end of 2021, 326 covered bond issuers were active around the globe (see Figure 2). The regional breakdown (see Figure 3) shows that the majority (88%) of all 326 issuers are located in Europe, while the share of the Asia/Pacific-based issuers rose to 7.7% last year (2020: 7.4%). The share of North America-based issuers rose by 0.6% to 3.1%, while that of South America-based issuers remained roughly stable at 1.2%. This being said, it is worth noting that the volume of South American covered bonds outstanding more than doubled in 2021 compared to 2020, mainly driven by Brazilian banks.


Figure 2: Number of Covered Bond Issuers

Source: ECBC Fact Book 2022, ABN AMRO

Figure3: Regional Share of Covered Bond Issuers


Source: ECBC Fact Book 2022, ABN AMRO

The firm commitment to contribute to European efforts to enhance financial stability and transparency led the covered bond industry to launch a quality label in 2012. The Covered Bond Label was developed by the European issuer community – led by the ECBC) – working in close cooperation with investors and regulators, and in consultation with all major stakeholders such as the European Commission and the European Central Bank. The Covered Bond Label and its transparency platform ( went live January 2013, providing detailed covered bond market data, comparable cover pool information and legislative details on the various national legal frameworks designed to protect bondholders. As of January 2023, 165 labels have been granted to 126 issuers from 24 countries, covering over EUR 2.07 tn. of covered bonds outstanding, where over 5,400 covered bonds include information on the Liquidity Coverage Requirement (LCR), maturity structures, regulatory treatment, etc.

In this context, covered bond issuers from these 24 different jurisdictions have come together to develop a Harmonised Transparency Template (HTT). Since 2016, the HTT has been providing cover pool information in a harmonised format, which allows for both the recognition of national specificities, with the National Transparency Tabs, and the comparability of information required to facilitate investors’ due diligence. In particular, to proactively align with the requirements of the Covered Bond Legislative Package, in September 2022 the Covered Bond Label published an updated HTT, fully aligned with Art. 14 of the Covered Bond Directive. Additional country-specific information on the covered bond programmes can be found in the National Transparency Templates often included in the HTT.

The critical mass achieved by this initiative (over 70% of covered bonds outstanding globally now hold the Label) is a clear sign that the Industry recognises the need to respond to the requirements of new classes of investors by providing higher levels of transparency to aid investment decisions. In this context, it is important to highlight that at present five non-EEA countries (Australia, Canada, Singapore, South Korea and the UK) in aggregate hold 32 labelled cover pools, linked to 453 covered bonds, which account for over EUR 297 bn, equivalent to 61% of the non-EEA covered bond market share.

The Industry has demonstrated its capacity to drive innovation and implement global transparency benchmarks through market initiatives such as the Covered Bond Label and the European Secured Note (ESN) instrument. More importantly, this community, by acting as a market catalyst has facilitated investors’ compliance with their due diligence obligations and provided a key contribution in the building of the Capital Markets Union in Europe. This market principle-based approach, in parallel with the introduction of the Covered Bond Directive, has shown that it is possible to build, from the bottom-up, proposals based on market consensus to initiate pan-European solutions that enhance transparency, comparability, convergence of markets and best practices. Taking stock of where we have come from, where we are now and where we are heading, it is clear that the market and the environment in which it operates is constantly evolving and, as such, the work of the ECBC and its Global Issues Working Group is always in progress. This provides us with an ongoing challenge, and we believe that the ECBC initiatives currently underway will help further strengthen the asset class and facilitate the convergence of market and supervisory best practices.

In line with the ever-growing importance of sustainable finance, the covered bond industry has embraced the urgency and challenges of this issue, and, at the time of writing, the Covered Bond Label is held by 89 sustainable covered bonds, collectively worth over EUR 61 bn. and registered across a variety of jurisdictions. Moreover, to provide more asset-related information for labelled covered bonds which are flagged as sustainable, starting from Q1 2023 labelled issuers will be requested to complete the F1 Tab of the Label’s Harmonised Transparency Template (HTT), which is specifically dedicated to sustainable mortgages in the cover pool. The challenges that lie ahead in this area are characterised by agreeing on a shared set of definitions to define “sustainable” and the specific ESG criteria for the underlying assets in the cover pool.

The ongoing harmonisation of the covered bond asset class at both EU and now also at the global level represents a new era for the Industry. In conjunction with these, market conditions, political and environmental developments and new trends are all impacting and shaping the product here and now, and will continue to do so going forward.