Featured Product

    EP Issues Report on Proposal for Regulation on Covered Bond Exposures

    November 26, 2018

    European Parliament, or EP, published report on the proposal for a regulation of the European Parliament and of the Council regarding exposures in the form of covered bonds. The proposed regulation would amend the Capital Requirements Regulation (Regulation No 575/2013). The report was tabled for the first reading at the Plenary session. It includes draft of European Parliament legislative resolution, procedure of the committee responsible, and information on final vote by roll call in the committee responsible.

    In light of the opinion of EBA, it is appropriate to amend CRR by adding additional requirements for covered bonds, thus strengthening the quality of covered bonds eligible for favorable capital treatment, as provided for in Article 129 of that Regulation. Article 129 of CRR grants, under certain conditions, preferential treatment to covered bonds. The report states that only a limited number of national covered bond frameworks allow the inclusion of residential or commercial mortgage-backed securities. The use of such structures is decreasing and is considered to add unnecessary complexity to the covered bond programs. It is thus appropriate to eliminate the use of such structures as eligible assets altogether. 

    Moreover, Article 129(1) of CRR establishes the loan-to-value (LTV) limits for mortgage and ship assets but does not specify how those limits are to be applied, which may lead to uncertainty. The LTV limits should be applied as soft coverage limits, meaning that while there are no limits to the size of an underlying loan, such a loan can only act as collateral within the LTV limits imposed on the assets. It is appropriate to specify that the LTV limits determine the portion of the loan contributing to the coverage of the covered bond. To ensure greater clarity, the report states that it should also be specified that the LTV limits are applicable throughout the entire maturity of the loan. The actual LTV should not change but remain at the limit of 80% of the value of the property for residential loans and at the limit of 60% of the value of the property for commercial loans and ships.

    To further enhance the quality of the covered bonds that receive the preferential capital treatment as provided for in Article 129 of CRR, that preferential treatment should be subject to a minimum level of overcollateralization, meaning a level of collateral exceeding the coverage requirements as referred to in Article 15 of the EU directive on the issue of covered bonds and covered bond public supervision. Member states can decide to apply a higher minimum level of overcollateralization to covered bonds issued by credit institutions located in their territory, without preventing other covered bonds with a lower minimum level of overcollateralization that comply with this Regulation from benefiting from its provisions. Such a requirement serves the purpose of mitigating the most relevant risks arising in case of the issuer’s insolvency or resolution. As per the report, CRR should be amended accordingly.

    This report also states that the proposed regulation should be applied in conjunction with the EU Directive on the issue of covered bonds and covered bond public supervision and amending the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) and the Bank Resolution and Recovery Directive or BRRD (2014/59/EU). To ensure the consistent application of the new framework establishing the structural features of the issue of covered bonds and the amended requirements for preferential treatment, the application of this proposed Regulation should be deferred to coincide with the date from which member states are to apply the provisions transposing that Directive.

     

    Related Links

    Keywords: Europe, EU, Banking, Securities, CRR, Covered Bonds, BRRD, UCITS, Report for Plenary, European Parliament

    Related Articles
    News

    APRA Publishes Proposal to Increase Transparency of Banking Data

    APRA proposed to substantially increase the volume and breadth of data it makes publicly available on authorized deposit-taking institutions, including banks, credit unions, and building societies.

    December 05, 2019 WebPage Regulatory News
    News

    ESMA Consults on Guide to Internal Controls for Credit Rating Agencies

    ESMA launched a consultation on the guidelines on internal controls for credit rating agencies (CRAs).

    December 05, 2019 WebPage Regulatory News
    News

    EU Finalizes Directive and Prudential Rules for Investment Firms

    EU published, in the Official Journal of the European Union, the Directive (2019/2034) and Regulation (2019/2033) on the prudential requirements and supervision of investment firms.

    December 05, 2019 WebPage Regulatory News
    News

    OSFI Revises Guideline on Principles for Management of Liquidity Risk

    OSFI finalized Guideline B-6 on the principles for the management of liquidity risk.

    December 05, 2019 WebPage Regulatory News
    News

    PRA Consults on Framework to Manage Outsourcing and Third-Party Risk

    PRA published a consultation paper CP30/19 that sets out proposals to modernize the regulatory framework on outsourcing and third-party risk management.

    December 05, 2019 WebPage Regulatory News
    News

    BoE, PRA, and FCA Consult to Strengthen Operational Resilience

    BoE, PRA, and FCA published a shared policy summary and coordinated consultation papers on new requirements to strengthen operational resilience in the financial services sector.

    December 05, 2019 WebPage Regulatory News
    News

    EC Amends Rule on Mapping of External Credit Assessment Institutions

    EC published the implementing regulation (EU) 2019/2028, which amends Regulation 2016/1799, regarding the mapping tables specifying correspondence between the credit risk assessments of external credit assessment institutions (ECAIs) and the credit quality steps set out in the Capital Requirements Regulation.

    December 04, 2019 WebPage Regulatory News
    News

    EBA Issues Second Part of Advice on Implementation of Basel III in EU

    EBA published the second part of its advice on the implementation of Basel III in EU, which complements the report published on August 05, 2019.

    December 04, 2019 WebPage Regulatory News
    News

    EU Approves European Council Proposal on CCP Recovery and Resolution

    EU ambassadors approved the position of European Council on a proposed framework for clearing houses and their authorities to prepare for and deal with financial difficulties.

    December 04, 2019 WebPage Regulatory News
    News

    OSFI Releases Guideline on Foreign Bank Branch Deposit Requirements

    OSFI released the final version of Guideline A-10 on foreign bank branch deposit requirements, along with guideline impact analysis statement.

    December 04, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4268