EBA欧洲银行-Recommendations-on-the-harmonisation-of-the-covered-bond-frameworks-in-the-EU-EBA-public-hearing-18-11-2016_40页_2mb

Summary of EBA Recommendations on the Harmonisation of Covered Bond Frameworks in the EU

Core Content

The European Banking Authority (EBA) conducted a public hearing on 18 November 2016, in response to the European Systemic Risk Board (ESRB) mandate to assess the functioning of the covered bond frameworks in the EU and provide recommendations for harmonisation. The EBA report outlines a three-step approach to achieve greater consistency and robustness in the regulation of covered bonds across the EU, while preserving national flexibility where appropriate.

Main Conclusions of the Analysis

Diversity of National Frameworks

• There is a high divergence in the alignment of national covered bond frameworks with the EBA best practices.
• Most jurisdictions have fully or partially aligned with the EBA best practices, but significant differences exist in the rules on special public supervision and supervisory practices.

Areas of Low Adherence

• Disclosure of data by issuers on cover assets and covered bonds
• Existence of liquidity buffers addressing liquidity risks
• Composition of the cover pool
• Stress testing for the calculation of coverage requirements

Best Practices Adhered To

• Dual recourse principle
• Segregation of cover assets
• Bankruptcy remoteness of covered bonds
• Coverage principle

Key Trends in the Market and Regulatory Developments

• Special/favourable treatment of covered bonds in EU financial regulation and ECB monetary policy:

  • Eurosystem’s CBPP3
  • LCR Delegated Act: covered bonds as part of the LCR buffer
  • BRRD: exemption from bail-in
  • RTS on OTC derivatives: exemption from clearing obligations and posting margins

• Changes in rating methodologies and new rating agencies entering the market

• Structural innovations:

  • Shift from traditional (hard bullet) to soft bullet and conditional pass through (CPT) structures

• Market dynamics:

  • Contraction of the market post-crisis
  • Increase in issuance since 2013
  • Expansion of covered bond markets outside the EU, with first issuances in Asia in 2015

• Investor base changes:

  • Substantial increase in the share of central banks as investors

• Cover pool composition:

  • Increasing use of mortgages
  • Decreasing use of public sector loans and other asset classes

• Enhanced transparency:

  • Market initiatives such as the ECB’s High Transparency Tool (HTT)

Three-Step Approach to Harmonisation

Step I: Covered Bond Framework

• Establishes a baseline definition of covered bonds for EU financial regulation
• Replaces relevant provisions in the UCITS Directive
• Focuses on structural features (e.g., soft bullet and CPT)
• Applies to all covered bonds seeking regulatory recognition

Key Requirements

• Dual recourse: Priority claim on both the issuer and cover assets
• Segregation of cover assets: Legal segregation via cover register, SPV, or specialised credit institution
• Bankruptcy remoteness: Covered bonds are not subject to the issuer’s insolvency
• Liquidity buffer: Must cover liquidity needs for 180 days
• Special public supervision: Requires a cover pool monitor and special administration in case of insolvency
• Transparency: Quarterly disclosure of cover assets and covered bonds, including methodology and structure

Step II: Amendments to CRR

• Introduces preferential risk weight treatment for covered bonds
• Includes eligibility of cover assets, substitution assets, LTV limits, and minimum overcollateralisation

Key Requirements

• LTV limits:
  • 80% for residential property
  • 60% for commercial property
• Minimum overcollateralisation:
  • 5% (calibrated based on impact assessment)
• Eligibility of cover assets:
  • Not widened to include SME loans, non-public sector debt, or infrastructure loans
• Substitution assets:
  • Up to 15% of the nominal value of outstanding covered bonds
  • Must meet coverage requirements

Step III: Voluntary Convergence

• Allows for non-binding national convergence in areas with less material impact on the overall robustness of the covered bond framework
• Includes:
  • Composition of cover pools (homogeneous, with one primary asset class)
  • Cover pools with assets outside EEA (subject to legal enforceability and underwriting standards)
  • LTV measurement and revaluation frequency (at least yearly)
  • Stress testing by the covered bond issuer

Overall Objectives

• Ensure consistency in the definition and regulatory treatment of covered bonds
• Protect the 'covered bond brand' by enhancing robustness and transparency
• Balance prudential objectives with the strengths of national frameworks
• Preserve flexibility in national implementation where appropriate

Timeline

• The report was published in December 2016 and submitted to ESRB, the Council, and the European Commission
• Subject to approval by the EBA decision-making body

Conclusion

The EBA’s three-step approach aims to create a more robust, transparent, and consistent regulatory framework for covered bonds across the EU. It addresses both structural and prudential aspects of covered bonds and promotes voluntary convergence in areas where it is less critical to the overall stability of the product.