DBRS Publishes “Towards a Harmonised Covered Bond Instrument – Extend but Don’t Pretend” Commentary

DBRS Ratings Limited (DBRS) released a commentary following the publication of the European Banking Authority’s (EBA) recommendations on harmonisation of covered bond frameworks in the European Union.

In DBRS’s view, the EBA’s recommendations:

1. Discount the value of the oversight;
2. Can cause more problems than they intend to solve in some countries;
3. Assume a level of harmonisation of national bank liquidation processes yet to be implemented across Europe;
4. Appear to be more focused on the risk of extension borne by investors.

In DBRS’s view, the EBA recommendations make sense when the issuer is a going concern universal bank (or is a mortgage bank that is part of a going concern banking group), which has other activities and assets on its balance sheet; i.e. there is a bankruptcy estate which investors could have recourse against, at least partly.

Notes:
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

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