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27 February 2019

Capital markets union: political agreement reached on EU framework for covered bonds

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The Romanian Presidency and the European Parliament reached a provisional agreement on a harmonised framework for covered bonds. This framework will specify a common definition to receive an EU covered bond label and benefit from preferential capital treatment.

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

The aim of the proposed framework (composed of a directive and a regulation), put forward by the Commission in March 2018, is to set minimum harmonisation requirements that all covered bonds marketed in the EU 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.

Full press release

© European Council

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