Archive for month: January, 2014
Covered Bonds in United Kingdom
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Covered Bonds in UK
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UK is one of the countries where covered bonds transactions do not enjoy the protection of bankruptcy law. Hence, structured covered bonds are used in the UK.
That notwithstanding, there have been regulations covering covered bonds issued way back in 2008.
In early April 2011, the Financial Services Authority UK, jointly with Her Majesty’s Treasury issued a consultation paper for review of the existing regulations for “regulated covered bonds”. The expression “regulated covered bonds” refers to covered bonds that are issued under the March 2008 regulations of the FSA. The FSA now proposes to revamp the existing regulatory scheme and replace the same with new regulations.
Covered Bonds in New Zealand
/in /by adminCovered bonds in Australia
/in /by adminCovered bonds in Australia
- Exposure draft on Banking Amendment (Covered Bonds) Bill (No. 1), 2011
- Covered Bonds: A Real Alternative, Australian Mortgage Report, 2010, Deloitte
- Paper on Uncovering a Covered Bond market in Australia, Nov, 2009, Henry Davis York
- Submissions of Australian Securitisation Forum to Australian Prudential Regulatory Authority on Covered Bonds, 2004
Covered Bonds in United States
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Updated on 5th May, 2011
After the financial crisis in US, Covered Bonds were gaining attention with the regulators, financial institutions as an alternative means of financing. Covered Bonds had been the preferred mode of funding in Europe for more than 200 years. Washington Mutual and Bank of America were the two domestic banks to have issued covered bonds in 2006 and 2007 respectively.
On April 23, 2008, the Federal Deposit Insurance Corporation (the “FDIC”) issued the Interim Final Policy Statement providing the first regulatory input on covered bonds. Final Covered Bond Policy Statement (the “FDIC Statement”) issued on July 15, 2008. Then, Secretary Paulson, came out with the Best Practices Code for Covered Bonds and then Scott. Garrett, several times introduced the Covered Bonds bill to establish a covered bonds framework to promote and develop the covered bonds market in US. The Act is similar lines to the European covered bonds. We have at length discussed the Bill in our news segment here.
The Covered Bonds Bill met with some conflict with the Federal Deposit Insurance Corporation (FDIC), as taking the covered pools away from the reach of the conservators, receivers in the event of bankruptcy leaves the depositors at undue risk. Thus FDIC has been wanting the regulation to allow access to the over-collateralised assets post bankruptcy.
The Bill was again put for consideration in March, 2011 and was approved by a sub-committee of House of Representatives, in May, 2011. The Bill will be put up for consideration before the House Financial Services Committee. (read our news on the issue here).
Useful Links
- Morrison & Foerster LLP's presentation on Covered Bonds in US, March 2011
- Testimony of Scott. A. Stengel before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, Hearing on “Covered Bonds: Potential Uses and Regulatory Issues,” September, 2010
- FDIC Covered Bonds Policy Statement, 2008
- Best Practices for Residential Covered Bonds, 2008
Covered bonds referencer
/in /by adminHistory of Covered bonds
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This article traces the history of covered bonds more than 200 years back: http://www.germanlawjournal.com/pdfs/FullIssues/PDF_Vol_11_No_12_Complete%20Issue%20FINAL.pdf
Legal write ups:
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When it comes to law of structured finance transactions, a colossal name that comes up is Steven Schwarcz. Here is is a Steven Schwarcz article on covered bonds – The Conundrum of Covered Bonds.
Policy issues, financial market regulation, economics of covered bonds:
Regulatory consultation papers, discussion papers, etc:
News and Latest Updates on Covered Bonds
Our Covered Bonds Home page Our articles on Covered Bonds
Our Workshops on Covered Bonds
Useful Links
Country Pages Covered Bonds Legislation |
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Covered Bonds Legislation
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Covered Bonds Legislations
This page tracks covered bonds laws, regulations, statutory instruments, guidelines, etc in different countries.
Covered Bonds Legislation
- Canada ready to issue its covered bonds in the market
- Vinod Kothari's article [July 2011] on recent activity in covered bonds laws
- Link to a site that tracks covered bonds laws
Our articles on Covered Bonds
- Introduction to Covered Bonds by Vinod Kothari
- Article on Covered Bonds in Asia
- The name is Bond. Covered Bonds – article by Vinod Kothari
Our Workshops on Covered Bonds
- To know about the latest workshops on Covered Bonds, see our page on latest workshops here
Useful links on Covered Bonds:
- European Covered Bonds Council
- UK Regulated Covered Bonds Council
- Financial Services Authority, UK, on Regulated Covered Bonds
- Fitch Ratings Covered Bonds Rating Methodology
- S&P's Covered Bonds Rating Methodology: Clarification of Liquidity Need Calculation, March, 2009
- Deutsche Bank, Global Markets Research, Overview of Covered Bonds, Feb 2009
- Covered Bonds in Asia, Asian Bond Market Forum
- Handbook on Covered Bonds
- Fitch Rating: Reports on Covered Bond
South Korea passes Covered Bonds Act
/in /by adminCovered Bonds Legislation in South Korea
January 1, 2014
South Korea passed its Korean Covered Bonds Act to reduce Korean households' exposure to interest rate shocks by facilitating longer-term, fixed-rate mortgage lending. It is the first Asian country to have dedicated covered bond legislation. This is seen as a positive development for the wider Asia-Pacific covered bond market and the market can expect issuance under the Act to occur soon after it comes into force in March 2014. Banks that issue covered bonds under the Act will also continue to utilise funding through Korean Housing Finance Corporation (KHFC). This choice is expected to give the banks a way of further diversifying their funding strategy.
The framework of the legislation provides definitions of eligible issuers, the segregation of the covered assets post-insolvency of the issuer, eligible assets, the appointment of an independent monitor, and regulatory reporting requirements. The framework also allows for a range of assets to be used as collateral for covered bonds, such as residential mortgages, municipal bonds, mortgage bonds or shipping and aircraft loans.
The minimum level of collateralization is set at 105% and covered bond issuance is limited to 8% of the issuer's total assets. Liquid assets used as substitution assets are also limited to 10% of the cover pool. Unlike assets that secure the KHFC issuance, which are taken off the originating bank's balance sheet, cover assets will remain on the issuer's balance sheet and will be recorded in a register. The cover assets are required to be ring-fenced, for the benefit of investors, from the claims of the issuer's other creditors in the event of issuer insolvency. The Act however does not outline any mechanism to minimise liquidity risk for investors and bridge maturity mismatches between the cover pool and the covered bonds.
Shambo Dey