November 28, 2018

European Council reached an agreement on the stance on a harmonized EU framework for covered bonds. The economic and financial affairs committee of the European Parliament voted on its draft report on November 20. The Parliament's stance is due to be confirmed by a plenary vote in December 2018.

The aim of the proposed framework (composed of a directive and a regulation), put forward by EC in March 2018, is to set minimum harmonization requirements that all covered bonds across Europe will have to meet. This will increase security for investors and open up new opportunities, in particular where markets are less developed. The proposed framework:

  • Provides a common definition of covered bonds
  • Defines the structural features of the instrument
  • Defines the tasks and responsibilities for the supervision of covered bonds
  • Sets out the rules allowing the use of the "European Covered Bonds" label
  • Strengthens the conditions for granting preferential prudential treatment to covered bonds under the capital requirement regulation

The covered bonds market  in the EU is developed. In December 2015, the outstanding volume of covered bonds issued by EU-based institutions reached EUR 2.1 trillion and constituted 84% of the total volume at the global level. Covered bond markets are particularly developed in Germany, Denmark, France, Spain, Italy, Luxembourg, and Sweden, as these countries have longstanding national regimes in place.

 

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Keywords: Europe, EU, Banking, Securities, Covered Bonds, Capital Markets Union, European Council

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