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Covered Bonds: Legal and Supervisory Protections for Bank Creditors and Their Relevance to Financial Stability
The issue of asset encumbrance has become a major topic of debate in capital markets over the past years. This debate can have a significant impact on the “capabilities” of the covered bond asset class to ensure financial stability and efficient long-term funding without jeopardising the position of other creditors at the bank. In particular, the gradual increase in asset encumbrance has raised questions about the underlying driving forces and consequences for financial stability. As a result, attention quickly turned to the role of covered bonds when, in 2011, their issuance in the EUR market exceeded the issuance of senior unsecured bonds for the first time.