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20 December 2016

EBA recommends a harmonised EU-wide framework for covered bonds

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This report seeks to ensure that only those financial instruments that comply with the harmonised structural, credit risk and prudential standards can be branded as ‘covered bonds' and have access to special regulatory and capital treatment as provided in the current EU financial regulation.

The report presents an in-depth regulatory and market analysis undertaken by the European Banking Authority (EBA) as a follow up to the recommendation issued by the European Systemic Risk Board (ESRB). As part of the analysis, the EBA observed that covered bond instruments with different quality characteristics across the EU are subject to the same European regulatory rules and benefit from a favorable regulatory recognition. 

Building on the results of the extensive study, and at the same time recognising the specificities and strengths of national frameworks, the EBA proposed a fully-fledged framework based on ‘three step approach' to harmonise the covered bonds in the EU.  

First, a new covered bond directive should be developed to provide a definition of the covered bond and specify structural quality requirements for all regulated covered bonds in the EU. Second, the Capital Requirements Regulation (CRR) should be amended to strengthen conditions for those covered bonds that seek preferential capital treatment. Third, convergence of national frameworks should be encouraged on a voluntary basis in some specific cases by means of non-binding instruments. 

This contribution will provide input into the European Commission's considerations on the further development of the Capital Markets Union project.

Press release

Full report


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