2014年-EBA欧洲银行管理局_EBA_Report_on_EU_Covered_Bond_Frameworks_and_Capital_Treatment_164页_3mb

EBA Report on EU Covered Bond Frameworks and Capital Treatment Summary

Core Content Overview

This report, in response to the European Commission's call for advice and the ESRB's recommendation on credit institution funding, provides a comprehensive analysis of the EU covered bond market and its regulatory and supervisory framework. It examines the legal and prudential aspects of covered bonds, including risk weight treatment, disclosure requirements, and the eligibility of specific cover assets such as aircraft liens, residential guaranteed loans, and RMBS/CMBS units.

The report outlines the current state of the covered bond market, identifies best practices, and makes recommendations to the European Commission and ESRB to improve consistency and safety across the EU. It also highlights the importance of transparency, risk management, and the role of competent authorities in ensuring the soundness of covered bond frameworks.

Main Points and Recommendations

1. Covered Bonds in the European Union

• The EU covered bond market has grown significantly since 2003, with total outstanding covered bonds reaching €2.813 billion by the end of 2012.
• EU countries account for 89.5% of total outstanding covered bonds.
• Mortgage covered bonds dominate the market, representing 80.2% of the total, followed by public sector covered bonds (19.3%) and ship covered bonds (0.5%).
• In 2012, 90% of new covered bond issuance was backed by mortgage collateral, up from 84% in 2011.
• The five largest issuing countries in 2012 were Germany, Spain, Denmark, France, and Sweden.

2. Risk Weight Treatment of Covered Bonds

• The standardised approach assigns 10% risk weight to 104 covered bond programmes (68%), while no issuing institution is assigned this risk weight.
• 20% risk weight is applied to 44 programmes (28%).
• CQS (Credit Quality Step) ratings are used to determine the risk weight treatment:
  • CQS1 (high quality): 104 programmes (68%)
  • CQS2: 22 programmes (14%)
  • CQS3: 20 programmes (13%)
  • CQS4: 4 programmes (3%)
  • CQS5: 0 programmes
  • No public rating: 4 programmes

3. Legal and Regulatory Frameworks

• Covered bonds are subject to national legal and regulatory frameworks, but they share common prudential features defined in the UCITS Directive and CRR.
• The report compares these frameworks across 14 jurisdictions, including Austria, Denmark, France, Germany, Ireland, Luxembourg, Portugal, Slovenia, and Spain.
• Key elements include:
  • Dual recourse (holders have a claim on both the issuing institution and the cover assets)
  • Segregation of cover assets and bankruptcy remoteness
  • Cover pool characteristics and valuation criteria
  • Coverage principle and over-collateralisation
  • Market and liquidity risk management
  • Monitoring and reporting requirements

4. Transparency and Disclosure

• Transparency is a key requirement for covered bond investors.
• The ECBC (European Covered Bond Council) and ICMA (International Capital Markets Association) have developed disclosure templates.
• National frameworks include specific disclosure obligations.
• The report recommends further harmonisation of disclosure requirements, particularly for Article 129(7)(a), to ensure consistent application across the EU.

5. Specific Cover Assets

• Aircraft loans:
  • Covered bonds backed by aircraft liens are not currently eligible for preferential risk weights.
  • The report highlights valuation complexities, limited issuance experience, and lack of historical performance data, suggesting that such assets should not be included in preferential treatment.
• Residential loans secured by a guarantee:
  • These are eligible for preferential risk weight treatment if additional criteria are met, such as the legal possibility of placing a first lien mortgage on the property in case of guarantor default and the appropriate capitalisation of the guarantor.
• RMBS and CMBS:
  • The current derogation in Article 496 of the CRR allows these to be included in cover pools.
  • However, the EBA recommends not extending this derogation, due to complexity and lack of transparency.

6. Risk Management and Stress Testing

• The report includes a cash flow sensitivity model to assess how covered bonds respond to various risk factors:
  • Credit risk
  • Currency risk
  • Interest rate risk
  • Liquidity risk
  • Maturity risk
• Stress testing is recommended to evaluate the resilience of cover pools under adverse conditions.
• The EBA recommends the inclusion of more detailed liquidity risk mitigation and liquid assets as a requirement for preferential treatment.

7. Role of Competent Authorities

• The competent authority plays a crucial role in issuing, monitoring, and resolving covered bond programmes.
• The report outlines the powers of competent authorities in case of issuer default and highlights the need for a more detailed specification of their role in the CRR.

8. Asset Encumbrance and Structural Subordination

• Covered bonds are a major driver of asset encumbrance due to the dual recourse mechanism and priority claims on cover assets.
• This can impact unsecured creditors and depositors, who are subordinated to covered bond holders.
• The EBA recommends monitoring asset encumbrance levels and structural subordination to ensure prudential stability.

Key Recommendations

1. Dual Recourse Mechanism:

   • Should be standardised across EU member states to ensure consistent investor protection.

2. Segregation and Bankruptcy Remoteness:

   • Covered bonds must ensure segregation of cover assets and bankruptcy remoteness to maintain the safety of investors.

3. Cover Pool Features:

   • Cover pools should be well-defined, transparent, and subject to regular monitoring.

4. Valuation and LTV Criteria:

   • The valuation of mortgage assets and LTV limits should be standardised and harmonised to ensure consistent risk assessment.

5. Coverage Principle and Over-Collateralisation:

   • A minimum level of over-collateralisation should be introduced to ensure that cover pools are always sufficient to meet obligations.

6. Market and Liquidity Risk Management:

   • Institutions should use derivatives for hedging, and liquid assets should be available at all times to mitigate liquidity risk.

7. Role of Competent Authority:

   • The role and powers of competent authorities should be more clearly defined in the CRR.

8. Disclosure to Investors:

   • Disclosure requirements should be standardised to ensure uniformity and transparency across the EU.

9. Preferential Risk Weight Treatment:

   • The EBA recommends reconsidering the preferential treatment for residential guaranteed loans and aircraft liens due to the lack of robustness and transparency.

Conclusion

The EBA concludes that the current preferential risk weight treatment of certain covered bonds is an adequate prudential measure, given the historical performance and dual recourse mechanism. However, it also highlights the need for additional qualifying criteria to ensure that only sound and transparent cover assets are eligible for preferential treatment. The report calls for greater harmonisation of disclosure, risk management, and supervisory practices across the EU to support a more integrated and resilient covered bond market.