05 December 2013

ECBC supports inclusion of covered bonds in LCR Level 1

The ECBC highlights a positive rationale to include covered bonds in LCR Level 1. The covered bond asset class has proved to be the most reliable source of wholesale funding through adverse market conditions, and has contributed to the financial stability of the European economy.

The European Covered Bond Council (ECBC) supports the inclusion of covered bonds as Extremely High Liquid Assets (Level 1) under the definition of the Liquidity Coverage Ratio (LCR): “The inclusion of covered bonds in Level 1 would mitigate against over reliance onsovereign debt by the European banking sector and would facilitate the objective ofdelinking the sovereign from the banking sector”, Luca Bertalot, Head of the European Covered Bond Council, said,

The ECBC concludes a positive rationale to include covered bonds in Level 1 based on the empirical study undertaken by the EBA, which, amongst other findings, stressed that: “In covered bonds, variables capturing the existence of regulatory characteristics which reduce credit risk and enhance transparency are significant predictors of liquidity".

The ECBC is concerned about the inclusion of rating triggers in European legislation, which could cause unintended disruption to the level playing field that exists amongst European countries. Therefore, the ECBC invites the EBA and the European Commission to consider the work undertaken by the covered bond industry to enhance the transparency and consistency of the asset class – as an alternative means for identifying a qualitative segment of the covered bond market.

Press release / ECBC-website

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