01 July 2014

EBA supports capital treatment of covered bonds, but calls for additional eligibility criteria

The EBA is of the opinion that the preferential risk-weight treatment that certain covered bonds receive across the EU in accordance with the CRR is appropriate, but it advises to strengthen the framework by introducing further qualifying criteria for their preferential treatment.

In particular, the Authority recommends that the additional qualifying conditions should cover minimum regulatory over-collateralisation, liquidity risk mitigation, and special public supervision. In addition, it advises that the disclosure requirements for preferential capital treatment currently foreseen in the CRR should be further clarified through the development of binding technical standards.

Finally, the EBA has concluded that residential guaranteed loans should be maintained within the scope of the preferential risk-weight treatment. However, it recommends not to include aircraft liens in the scope and not to renew the derogation on the use of residential mortgage-backed securities (RMBSs) and commercial mortgage-backed securities (CMBSs) as cover assets beyond December 2017.

The findings of the report are based on a review of national regulatory frameworks and supervisory practices on covered bonds in the EU, which identified substantial differences across the single market, as well as several areas where a common approach to covered bonds should be achieved. The review also evaluated main industry initiatives related to covered bond disclosure to investors.

Through this review, requested by the European Systemic Risk Board, the EBA also identified best practices for a robust common regulatory framework for covered bonds across the EU. They cover crucial areas of covered bond regulation, from the dual recourse principle, segregation of cover assets and bankruptcy remoteness, composition of cover pools, loan-to-value (LTV) limits and measurement, over-collateralisation, liquidity buffers, stress testing, supervision and disclosure.

Press release

Report on EU Covered Bond Frameworks and Capital Treatment

Covered Bond Opinion

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