EBA欧洲银行-EBA-RTS-2013-05-28Final-draft-RTS-on-covered-bonds-close-correspondence29_14页_664kb

EBA Final Draft Regulatory Technical Standards Summary

Core Content

The EBA Final Draft Regulatory Technical Standards (RTS) focus on defining the concept of "close correspondence" between the value of an institution's covered bonds and the value of its assets in relation to own credit risk under Article 33(3)(c) of Regulation (EU) 575/2013 (CRR). The aim is to ensure a transparent and prudent treatment of financial instruments in the context of own funds.

The RTS are intended to clarify the conditions under which gains and losses on liabilities (covered bonds) can be included in own funds, provided that they are offset by changes in the value of related assets. This is particularly relevant for mortgage financing models where a direct link exists between the value of the mortgage loans and the corresponding covered bonds.

Main Views

• Unrealised gains and losses on liabilities valued at fair value, due to changes in own credit risk, are generally excluded from own funds.
• Close correspondence is a special case where gains and losses on liabilities are offset by changes in the value of related assets, ensuring that no change in own funds occurs.
• The rule is designed to prevent an increase in regulatory capital during periods of financial distress due to the institution's own credit risk.
• The Danish mortgage system is highlighted as a practical example of a business model where a direct match between mortgage loans and covered bonds exists, allowing for offsetting fair value changes.
• The EBA Regulation (EU) 1093/2010 mandates that draft RTS be accompanied by a cost-benefit analysis, ensuring a harmonised and consistent approach across the EU.

Key Information

Conditions for Close Correspondence

1. Equal changes in fair value of covered bonds and underlying assets.
2. Redemption option for mortgage loans via the delivery option (buying back covered bonds at market or nominal value).
3. Transparent mechanism for determining fair value of both mortgage loans and covered bonds.
4. No net profit or loss arises from the changes in value of the covered bonds and the underlying mortgage loans.

Business Model Considerations

• The traditional mortgage bond model in Denmark, which had a close correspondence between bond and loan values, is no longer predominant.
• The CRD-compliant mortgage covered bonds and covered bonds now dominate the market, but close correspondence features are still embedded in most mortgage financing schemes.
• Universal banks are an exception, as they issue covered bonds under the Eurostyle issuing scheme, which does not include close correspondence.

Legal and Regulatory Context

• The RTS are produced under Article 10 of the EBA Regulation and will be binding in all EU Member States.
• They are expected to ensure a level playing field across the EU by preventing divergent national interpretations.
• The entry into force of the Regulation is 20 days after publication in the Official Journal of the European Union.

Accompanying Documents

Draft Cost-Benefit Analysis / Impact Assessment

• The proposed RTS are not expected to result in compliance costs for institutions or National Supervisory Authorities.
• The economic benefits are expected to contribute to financial stability and prudent capital treatment.
• The traditional mortgage bond model in Denmark is already aligned with the proposed treatment, and the harmonisation will apply across EU jurisdictions.

Feedback on Public Consultation

• A public consultation was conducted from 19 July 2013 to 1 September 2013.
• Two responses were received and published on the EBA website.
• The main issues were related to the definition of close correspondence and the delivery option.
• The EBA has taken into account the comments and adjusted the draft RTS accordingly, particularly in Article 2.1(a) and (b).

Conclusion

The EBA Final Draft RTS provide clear criteria for determining when gains and losses on covered bonds can be included in own funds due to changes in own credit risk, ensuring prudence and transparency in regulatory capital treatment. The standards are aligned with the Danish mortgage model and aim to harmonise the approach across the EU Single Market.