This Tuesday, the European Parliament voted on the initiative report “Towards a pan-European covered bonds framework”. Covered bonds are debt securities issued by a bank or mortgage institution and collateralised against a pool of assets. Holders of covered bonds are protected twice, through recourse against the issuer and the collateral, a safety mechanism known as “dual recourse”. Although covered bonds receive significant preferential treatment by EU financial regulation, they are not regulated in EU law so far. Therefore, the European Commission announced to put forward a legislative proposal for a common EU framework of covered bonds in the first quarter of 2018. The initiative report adopted today outlines the position of the European Parliament favouring a principle-based approach harmonizing the features of covered bonds.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
“A European Covered Bonds Framework will contribute to the completion of the Capital Markets Union. In light of the significant preferential regulatory treatment that covered bonds receive under EU law, we need to ensure that the diversity of national regimes does not jeopardize financial stability. However, any EU regulation shall build upon well-functioning national systems without disrupting them keeping in mind that no investor lost money with covered bonds. The principles-based approach adopted by the Parliament today shall serve as a yardstick for the Commission when proposing its Directive next year.
Following the objective to foster financial stability, we are happy to see included in the final text Green amendments such as limitations to derivatives, requirements on the substitution of cover-pool assets as well as an authoritative list of compliant covered bonds regimes at European level enhancing transparency. Likewise, we are satisfied that the eligibility of ships as cover pool assets shall be subject to an impact assessment. We are also glad that the rapporteur’s tendency to euro-sceptical language has been rejected by the majority of the Parliament. Ending zero risk weights for government bonds without additional risk sharing would negatively affect not only southern Member States but the financial stability of the EU as a whole.”