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