See Mayer Brown’s Covered Bonds – At A Glance
for U.S.$ covered bond statistics for the period 2010 through 2020.Noteworthy is the heavy retained issuance in 2020 in C$ for repo with the Bank of Canada.
Commentary
Mar 2020- Recent Posts. See our most recent posts on covered bonds:
Jan 2019- The American Banker is
reporting that “There’s now a confluence that’s been built around the need to really do a deep dive on national housing policy itself, which housing finance is just one important element,” according to David Jeffers, the executive vice president of policy and public affairs at the Council of Federal Home Loan Banks.
Jan 2019- Urban Institute Report on U.S. Housing. See our new post (
U.S. Housing Overview.) on the Urban Institute Report on U.S. housing and the dominance of the GSEs in housing finance. The GSEs are virtually the only game in town. Is that risk to the taxpayers worth it? Why?
Dec 2018- NY Fed Study on Housing Finance The New York Federal Reserve Bank has released an
Economic Policy Review entitled
The Appropriate Role of Government in U.S. Mortgage Markets. Given the conservatorships of Fannie Mae and Freddie Mac, one wonders why it took so long to ask this question. Nevertheless, this review represents a welcome attempt to inject some rationality into U.S. housing finance. As the Economist
reported yesterday, we have accidentally nationalized the U.S. mortgage market at a cost of something like one percent of GDP annually. It is high time to rely more on the private capital markets and less on government fiat for housing finance. The Economist believes the taxpayer savings would be substantial. Starting on page 63 there is a comparison of U.S. and Danish mortgage financing and a recommendation that policy makers look at the Danish use of capital markets to finance mortgage loans using covered bonds.
July 2018- GSE Progress? The White House has proposed a plan for reorganization of the Government, which includes a
plan for reorganization of the GSEs that has a political twist that might actually make a difference. “Reform of the Federal Role in Mortgage Finance” begins in page 79 of the White House proposal. The plan would fully privatize Fannie Mae and Freddie Mac and give them access, together with other private entities, to a Government guarantee for a fee. Under the plan a new Federal entity would create and regulate a market for Federal guarantees. The interesting political twist is that Fannie Mae and Freddie Mac would not longer be responsible for assisting low income borrowers. Instead that role would shift to the Department of Housing and Urban Development. Fannie and Freddie would lose their Federal charters and would no longer be the focus of political infighting over federal assistance for low income residential mortgage loan borrowers. Perhaps with the removal of that responsibility Fannie and Freddie will become less political and some real progress could be made in creating a rational structure for providing Federal support for residential mortgage loans.
Jan 2018- What a difference a year makes! – As we move into 2018 there isn’t a whisper of covered bond legislation in the United States. Nothing! The resurrection of the GSEs in their old form seems to on the agenda. Amazing how short memories are. All is forgiven. $180 billion of bail-out cash is no big thing. We could do it again if need be, but of course this will never happen again. Everyone is born again! And what is the definition of “madness”?
Jul 2017- Six Months In – After strong rumors in January, there has been no subsequent discussion of covered bonds in this administration.  There has been some indication that the administration will tackle the GSEs, but no movement.  
The Financial Choice Act passed the House on June 8, but seems to have little support in the Senate.  It addresses primarily repeal of portions of Dodd-Frank, but doesn’t address the GSE.  All of the energy is spent on health care and taxes. There is little left for housing finance.
Jan 2017- New Administration – what does it mean? Still too early to tell. Treasury Secretary-designate Mnuchin indicated in his confirmation hearing testimony that the administration intended to move to address Fannie Mae and Freddie Mac. There has also been some quiet indications that covered bonds are again on the agenda. However, it is still early days, too early to know if covered bonds will play a role in a new housing finance system.
Nov 2016- Trump won?! What!? Really?! Whoa! Now what? And what does it mean for covered bonds? What does it mean for the GSEs? Good questions! But not questions we have answers to right now. It’s too soon.
It would not be a surprise to see the Republicans in Congress tackle GSE reform. But the nature of the reform is not clear. It is likely that some reduction in the role of the Government in housing finance would be part of the reform, but this will be a contentious issue with the Democrats and one they might filibuster in the Senate, so it will take some support from Democrats to reach a 60-vote majority needed to defeat a filibuster. That means compromise somewhere to bring in the necessary Democrats.
The covered bond picture is more nuanced. First, the role of the GSEs in housing finance has to be reduced before the banks will look to other means of finance for mortgage loans. Second, the champion of covered bonds over the last six years has been Representative Scott Garrett (R-NJ), who was defeated in the election and will not be returning to the House next year. There is no apparent successor to pick up the baton. With an expected heavy focus on reducing banking regulation, covered bond legislation may never see the light of day. So keep your fingers crossed for someone to perceive the benefit of covered bonds in a changed housing finance framework.
July 2016- 2016 is of course a Presidential election year in the United States. It seems pretty unlikely, therefore, that we will see any progress in 2016 on covered bond legislation, in part also because it is unlikely we will see any movement on GSE reform. Particularly GSE reform turns on the outcome of the election and covered bond legislation seems closely tied to GSE reform. See
Why is CB legislation tied to GSE reform? Unfortunately, it looks like a long wait until 2017 for covered bond legislation in the United States, notwithstanding the positive comment from Rep. Scott Garrett (see below).
Nov 2015- Rep. Scott Garrett reportedly told the audience at a mortgage industry conference in New York on November 12 that with the lifting of the federal debt ceiling it might be possible now to pass a covered bond bill in the Senate. The conference was the
2nd Annual Private Label RMBS Reform Symposium, sponsored by the
Structured Finance Industry Group and IMN.
Feb 2015- Why do investors like covered bonds? –
What is it about covered bonds?
Feb 2015- Why not covered bonds? –
What’s to lose?
Jan 2015- Congress schedules covered bond review. With the beginning of the new Congressional term, the House Financial Services Committee released its
Oversight Plan, which includes a statement that the “
Committee will examine the potential for covered bonds to increase mortgage and broader asset class financing, improve underwriting standards, and strengthen U.S. financial institutions.” See the related
article posted on January 23 in The Covered Bond Report.
Canada Housing Overvalued –
The Bank of Canada reports that Canadian housing is up to 30% overvalued. However, the Bank says that household imbalances remain the most important risk to stability.
Use CBs to Restore PLS –
Can covered bonds assist the recovery of the PLS market by allowing the GSEs to shrink faster?
GSE Reform –
A disquieting process
Mortgage Rates –
Are they uncompetitive?
US Legislation –
Why is legislation taking so long? Does the U.S. not see the benefit of covered bonds?
Pass-Through CBs –
Given the long RMBS history in the U.S. would pass-through covered bonds work here?
Housing Bubble? Is there a housing bubble in Canada?
Non-Canada US$ Issuers
Jun 2017- The first half of 2017 has seen issuance from Deutsche Pfandbriefbank AG (twice), LBBW, United Overseas Bank, DnB Boligkreditt, Stadshypotek AB, and SR Boligkreditt for a
total of $5.3 billion.  Issuance volume and frequency is largely determined by cross currency swap costs.
Hot Topics
CBs as HQLA –
should covered bonds qualify in U.S. as high quality liquid assets for LCR purposes?
Encumbrance –
why such a hot topic?
Anemic RMBS –
CMBS and CLOs are booming, but not RMBS. What does that tell us?
Canadian Issuers
Jun 2017- 2017 started off strong for the Canadian banks with six offerings by the ninth of January and two more in March.  However, since then they have been quiet, with no issuance at all.  Canadian ‘bail-in’ proposals have been
published and that may account for some their absence from the market as they reconsider their funding strategies.
Dec 2016-
2016 was a good year for Canadian issuance of covered bonds. Canadian banks came to the market with 34 offerings of covered bonds in $, €, £, C$ and A$ currencies.  Five of those offerings were reopenings of existing series of covered bonds by CIBC, RBC and TD.  The distribution of offerings across currencies was as follows:
| Currency | # Offerings | Amount |
| € | 14 | 12,861 |
| $ | 6 | 9,250 |
| C$ | 3 | 4,500 |
| £ | 10 | 2,625 |
| A$ | 1 | 400 |
See
Canadian Issuance.
Feb 2016- Change Canada’s 4% Limit? OSFI is apparently considering raising the 4% of total assets limit on the issuance of covered bonds. See
OSFI to Reconsider 4% Limit?
Jan 2016- 2016 began with a flurry of Canadian offerings.
Seventeen offerings in all in the first two weeks;
six covered bonds: TD Bank CBL10 (€1.000B), RBC CB28 (€0.100B), CIBC Tap CBL8 (€0.100B), BNS CBL11 (£0.400B), BMO CBL7 (€1.500B), BNS CBL12 (€1.500B); and
eleven senior notes: BNS $1.000B, $0.500B,
€0.050B,
£0.300B and
€1.500B;
BMO £0.217; TD Bank $0.750B and $0.500B; and
RBC $1.250B,
€500 and
£200. See
CDN Issue Details and
MTNs. A pretty remarkable showing in a volatile market for the start of 2016. Perhaps the best commentary on the overall market conditions one day last week came from Citibank MD Laura Drumm:
“Well, that was ugly …”.
Regulatory Developments
BCBS –
Basle has announced increased capital requirements for securitization exposures. See the full report.
Final Risk Retention –
The SEC has finalized its risk retention rule for securitizations. See the full text of the final rule.
Reg AB II and Covered Bonds –
Generally Reg AB II is not going to apply to covered bonds. Canadians?
Final Reg AB II –
SEC finalizes the amendments to Regulation AB
U.S. Treasury – United States Department of the Treasury has requested comments on the private sector development of a well-functioning private label securities (PLS) market for residential mortgage loans. See the original request.
LCR in Canada Covered bonds qualify for LCR Level 2A.
Volcker Rule –
only foreign bank covered bonds are carved out of the prohibitions in the rule?
Technical Notes
