Pfandbriefe

1 Who is the issuer?
  • Universal credit institution with a special license
  Comments: Since the PfandBG 2005, the issuer does not need to be a specialised bank
2 Does the bondholder have recourse to the credit institution?
  • Yes, direct
  Comments: There is no direct legal link between cover assets and Pfandbriefe.
All obligations from the Pfandbriefe are obligations of the issuing bank as a whole, to be paid from all the assets of the issuing bank.
Only in the case of insolvency, the cover pool is isolated from the general insolvency estate, and is reserved for the claims of the Pfandbrief holders; but even then, Pfandbrief holders have still a claim against the general insolvency estate. See V. 1.
3 Who owns the cover assets?
  • The issuer directly
4 Is the issuer the originator of the assets?
  • Yes
1 Are the bonds governed by a special covered bond Legislation?
  • Yes
  Comments: The legal basis of German Pfandbriefe is the PfandbriefAct (Pfandbriefgesetz - PfandBG) from 22 May 2005, which came into force on 17 July 2005; this Act was amended in 2009, 2010, 2013, 2014 and 2015.

Furthermore several regulations were made:
Net present value Regulation (2005),
Regulation on the Determination of the Mortgage Lending Value (2006),
Cover Register Statutory Order (2006),
Regulation on the Determination of the Mortgage Lending Values of Ships and Ships under Construction (2008),
Regulation on the Determination of the Mortgage Lending Values of Aircraft (2009).
2 What is the legal framework for bankruptcy of the issuer of covered bonds?
  • Specific legal framework superseding the general insolvency law
  Comments: §§ 30 – 36a PfandBG
1 What types of assets may be included in cover pools?
  • Exposures to public sector entities
  • Mortgage loans (Mortgage loans for the purpose of this question are taken to include guaranteed real-estate loans.)
  • Ship loans
  • Aircraft loans
  • Exposures to credit institutions
  Comments: All Pfandbriefe must be fully secured by cover assets: loans to the public sector as well as land, ship or aircraft mortgages, § 4 I PfandBG. For each of these 4 asset classes, there is a specific class of covered bonds: Hypothekenpfandbriefe, Öffentliche Pfandbriefe, Schiffspfandbriefe and Flugzeugpfandbriefe. Up to 10% of the nominal volume of Pfandbriefe outstanding may consist of money claims against the European Central Bank or central banks in the European Union or against suitable credit institutions. For Hypothekenpfandbriefe, the part of those 10% that is not exhausted by these asset types and moreover another 10% may consist of cover assets suitable for Öffentliche Pfandbriefe (loans to the public sector), § 19 I 2. and 3. PfandBG.

Similar provisions are regulated for mortgage lending values of ships and aircraft.

Pfandbrief issuers can pursuit all business activities that are permitted for credit institutions. For the coverage of Pfandbriefe, assets from the four business areas: mortgage lending, public sector lending, ship finance and aircraft finance may be used.

Exposures to credit institutions must fulfill the criteria of credit quality step 1.
2 What is the geographical scope for public sector assets?
  • Domestic
  • Multilateral development banks
  • EEA
  • CH
  • USA, Canada, Japan
3 What is the geographical scope for mortgage assets?
  • Domestic
  • EEA
  • CH
  • USA, Canada, Japan
  • NZ AUS
  • Other
  Comments: Regarding land mortgage collateral, only mortgages on real estate located in the following countries are eligible for the cover: EU- or EEA-countries, Switzerland, USA, Canada and Japan; the amendment 2014 extended the country scope to Australia, New Zealand and Singapore. Public sector loans to these countries are eligible for the cover of Öffentliche Pfandbriefe (§ 20 PfandBG). Ship and aircraft mortgages can be granted worldwide under certain conditions, especially that there is a public register for these mortgages, and that these give a security comparable to German ship and aircraft mortgages (§ 22 V 1 / § 26 b IV 1 PfandBG).

The issuer has to publish regularly the regional distribution of the cover assets (§ 28 PfandBG). Furthermore, the total volume of the loans in states (not belonging to the EU), for which it is not ensured that the preferential right of the Pfandbrief creditors extends to the cover assets, may not exceed 10 % of the total volume of the cover loans (§§ 13 I 2, 20 I 2 PfandBG) – 20 % for ship mortgages (§ 22 V 2 PfandBG) and aircraft mortgages (§ 26 b IV 2 PfandBG).
4 Are regular covered bond specific disclosure requirements to the public mandatory?
  • Yes
  Comments: Yes, in details regulated in § 28 PfandBG. View VI.2.
1 LTV is calculated using which valuation?[4]
  • Mortgage lending value
  Comments: The basis of this LTV calculation is the so called mortgage lending value (Beleihungswert), which has to be calculated in a different way compared to the market value, § 16 PfandBG. Details of the valuation procedure and the qualifications of the appraisers are regulated in a specific statutory order on mortgage lending value (Beleihungswertermittlungsverordnung, BelWertV), § 16 IV PfandBG.

§ 7 BelWertV requires personal and organisational independence of the valuer. Personal independence means that there must not be any connection between the valuer and the borrower. Organisational independence means that inhouse valuers must not be part of the credit division and must not be integrated in the credit decision. Organisational independence is assumed for external valuers.

Similar provisions are regulated for mortgage lending values of ships and aircraft.
2 Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  • Residential      
    60%
  • Commercial      
    60%
  • Agricultural
    60%
  • Ships
    60%
  • Aircraft      
    60%
  Comments: 60 % of the mortgage lending value. But there is no absolute lending limit, only a relative one: This means that mortgage loans may have a higher LTV than 60 %, but only the part of the loan up to 60 % LTV is part of the cover pool, § 14 PfandBG.

For more details see VII.3.
3 Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
  • No
4a Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)?
  • No
  Comments: See IV.2.
4b Is there an LTV cap which would require a loan to be removed from the cover pool?
  • No
  Comments: But there is a monitoring of the property value. § 26 BelWertV wants a review of the underlying assumptions of the mortgage lending value, if there are hints that these could have deteriorated. This has to be done especially, when the market prices have declined substantially in the respective region.

For other real estate than owner occupied residential real estate an automatic review procedure is also necessary, when the loan has defaulted (arrears of 90 days).

Furthermore, there are monitoring requirements resulting from Capital Requirements. For commercial real estate there has to be an annual monitoring. For residential real estate a review of the underlying assumptions every three years is sufficient. A change for risk weighting purpose could lead to apply § 26 BelWertV.

The monitoring can be done by any qualified person. Statistical methods may be used.

Similar provisions are regulated for mortgage lending values of ships and aircraft.
5 Is there any additional LTV limit on a portfolio basis?
  • No
Exposure to market risk
1 Is exposure to market risk (e.g. interest rate, currency risks) required to be mitigated by law or contract?
  • Yes
  Comments: § 4 II PfandBG stipulates that the total volume of Pfandbriefe outstanding must be covered at all times by assets of at least the same amount. This means that the nominal value of the cover assets must permanently at least be the same than the respective total value of the Pfandbriefe.

In addition § 4 I PfandBG requires that Pfandbriefe are covered on a net present value basis even in case of severe interest rate changes and currency movements. The issuer has to ensure that after the so called stress tests, which have to be carried out weekly, an over-collateralisation of at least 2% exists. Details on how to calculate the NPV and the stress tests are regulated in the statutory order on net present value (Pfandbrief-Barwertverordnung – PfandBarwertV) – On a quarterly basis, the stressed NPV of the Pfandbriefe outstanding, the structure of the cover pool and the over-collateralisation has to be published (§ 28 PfandBG). See V.6.
2 What is the primary method for the mitigation of market risk?
  • “Natural” matching (matching without the use of off-balance sheet instruments) and stress testing
  Comments: Pfandbrief issuers are allowed to use derivatives as additional mitigation of interest or currency risk.
3 If the answer to the above question on market risk mitigation is “Use of derivative hedge instruments”, please specify whether those instruments are entered into:
  • Not relevant
  Comments: PfandBG allows the use of derivatives for mitigation of market risks. In order to be eligible as cover pool assets derivatives have to be based on standardized master contracts in such way that a Pfandbrief bank’s insolvency does not lead to a termination or default of those derivatives registered in the cover pool register.
4 What type of coverage test is applied?
  • Nominal cover
  • Present value cover
  Comments: Please refer to question V.1
5 What is the frequency of coverage calculations?
  • Daily
  Comments: The NPV cover and the 180 day liquidity buffer according to § 4 Ia PfandBG has to be calculated on a daily basis.
6 What types of stress scenarios are applied?
  • Static
  • Dynamic
  • Model based (i.e. VaR)
  Comments: A specific statutory order on net present value (PfandBarwertV) prescribes in detail how to calculate the net present value (procedure, stress scenarios, risk models etc.). This can be done by static or dynamic approaches or based on internal models.
7 What is the frequency of stress test calculations?
  • Weekly
  Comments: The npv cover and the liquidity buffer has to be calculated on a daily basis. The npv stress test has to be performed weekly.
Exposure to liquidity risk
8 Is exposure to liquidity risk required to be mitigated by law or contract?
  • Yes
  Comments: With the amendment 2009 of the PfandbBG a liquidity buffer for the mitigation of short-term liquidity risk is introduced. The Pfandbrief issuer is obliged to cover the maximum liquidity gap within the next 180 days.
9 What is the primary method for the mitigation of liquidity risk on interest payments?
  • “Natural” matching (matching without the use of off-balance sheet instruments) and stress testing (Natural matching is taken to include replacing CBs with new issues, as well as substitute assets.)
10 What is the primary method for the mitigation of liquidity risk on principal payments?
  • Natural matching (matching without the use of off-balance sheet instruments) and stress testing
11 Is there any grace period in case of a breach of liquidity risk mitigants?
  • No
12 What is the consequence of not fixing a breach of liquidity risk mitigants?
  • Other regulatory or rule-based action
  Comments: A breach of liquidity risk mitigants is not allowed as the liquidity buffer is stipulated by law. A violation of the legal reguirements could lead to a loss of the Pfandbrief license.
Monitoring of exposures to market and liquidity risk
13 Who monitors the maintenance of coverage tests?
  • Supervisory authority
  • Rating agency
  • Trustee/cover pool monitor
  • Other
14 Are there any regular public reporting requirements for market and liquidity risk?
  • Yes
  Comments: According to § 28 I PfandBG issuers are obliged to publish on a quarterly basis information regarding nominal and NPV coverage, stress test and the cover pool assets.
Overcollateralisation
15 Is mandatory minimum overcollateralisation required?
  • By legislation/regulation
16 What is the level of minimum mandatory overcollateralisation?
  • 2 %
  Comments: The 2% have to be covered under interest rate and currency stress assumptions.
17 If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected?
  • Yes
  Comments: German Bundestag, Publication reference 16/13823, 21. 07. 2009:
"The excess cover stipulated in § 4 par. 1) of the Pfandbrief Act, to be calculated on a net present value basis, including the related stress tests, forms part of the statutory coverage. The following points apply to assets which a Pfandbrief bank holds in excess of the amount required by law to fulfil its coverage obligations, i.e. which it holds “voluntarily” in the cover pool:
• § 30 par. 4) of the Pfandbrief Act stipulates that the insolvency administrator can only demand that assets are transferred to the insolvent estate if these assets will “obviously not be necessary” to service the Pfandbrief creditors on time.
• However, the claim to release of the assets only applies in the case of a disproportionally high level of overcollateralization, as it must be “obvious” that the assets will not be necessitated to service the Pfandbriefe.
• The wording used in the Act to the effect that the assets “will” obviously not be necessary means that this assessment cannot be based on the net present values at a particular cut-off date, but must pay due regard to future risks over the entire terms of all outstanding Pfandbriefe of the relevant Pfandbrief category. The court would ultimately have to rule on the forecast involved in this assessment.
• The burden of demonstration and of proof that the conditions for the transfer of assets are met lies with the insolvency administrator (Bundestag publication reference 15/1853 of 29 October 2003)."
18 Is there any grace period in case of a breach of the coverage test?
  • No
19 What is the consequence of not fixing a breach of the coverage test?
  • Other regulatory or rule-based actions
  Comments: A breach of the coverage requirement is not allowed as the requirement is stipulated by law. A violation of the legal requirements could lead to a loss of the Pfandbrief license.
1 Is a special license required for the issuing of covered bonds?
  • Yes with additional requirements compared to general banking supervision regulations
  Comments: The issuer is a fully equipped credit institution, which has a special licence to issue “Pfandbriefe”. § 2 I PfandBG sets minimum requirements to get and to keep this special licence:
- core capital of at least 25 million euros,
- general banking licence allowing to do lending business,
- suitable risk management procedures and instruments,
- business plan showing regular and sustainable issues as well as necessary organisational structure.
2 Are there special reporting duties of the covered bond issuer to the supervision authority concerning covered bonds and the cover pool, which go beyond the regular banking supervision?
  • Periodic reporting required
  Comments: Pfandbrief issuers have to send copies of the cover register to BaFin.
The amendment 2014 introduced an additional Pfandbrief reporting system on the financial position of cover pools. It will be necessary to set out the details of this new reporting requirement by means of a separate regulation which will address how Pfandbrief banks will have to calculate and present the “intrinsic economic value” of cover assets.
3 What is the role of the banking supervision regarding covered bonds?
  • To check whether eligibility criteria are fulfilled and documented
  • Checking quality of cover assets (real estate valuations, etc)
  • Monitoring of exposure to market risk and liquidity risk
  • Evaluation of operational risk
  • To check minimum mandatory overcollateralisation requirements
  Comments: This is a “special” public supervision (reference to UCITS Art. 22(4)), because the BaFin has to supervise Pfandbriefbanks more intensive than banks in general. A special BaFin division “Pfandbriefkompetenzcenter - Grundsatzfragen sowie Deckungsprüfungen”, equipped with more than 20 specialists, is responsible for all fundamental issues regarding the PfandBG, especially its interpretation and further development, furthermore for cover pool checks (Deckungsprüfungen).

The German banking supervisory authority (BaFin) carries out the supervision on German Pfandbrief banks, § 3 PfandBG. It has the power to give any instructions which are appropriate and necessary to ensure that the Pfandbrief bank’s business complies with the PfandBG and all statutory orders based upon it.
The BaFin has to check the cover pool on the basis of suitable random checks about every two years (§ 3 PfandBG). Herefore the BaFin appoints auditors with special know how.

The supervisory authority also carries out the supervision of the cover register: It is supervising the bank (§ 3 PfandBG) as well as the cover pool monitor: It appoints the cover pool monitor and the appointment may be revoked by the supervisory authority at any time, provided that there is an objective reason, § 7 III PfandBG. Furthermore, according to the statutory order based on § 5 III PfandBG (Deckungsregister-Verordnung, DeckRegV), copies of the cover register automatically shall be transmitted regularly to the supervisory authority. So this authority will be able to check – as stipulated in § 3, 3 and 4 PfandBG - whether the cover of the Pfandbriefe can be affirmed. The authority carries out this supervision by an audit on the basis of suitable random checks every two years.

The PfandBG amendment 2014 gave - in similar vein to the supervisory authority’s power to require capital add-ons - BaFin the power to require supplementary cover (known in the jargon as “cover add-ons”). In future BaFin will carry out separate regular checks on all cover pools to ascertain whether the statutory over-collateralization of 2% appears sufficient. If it forms the view that this is not the case, it can impose a cover supplement by means of an administrative act. The Pfandbrief bank must be consulted before this happens; this affords it the opportunity to adapt to the increase. Such checks and impositions will be carried out within the framework of special public supervision of Pfandbriefe and cover pools, i.e. as part of the normal regulatory process.
4 Is there a special role of banking supervision in crisis regarding covered bonds?
  • Safeguarding ongoing management of the cover pool directly or via a special administrator
  • Involvement in transfer of cover assets and covered bonds to another credit institution
  Comments: This is regulated in details in §§ 32 - 36a PfandBG.
5 Is there a cover pool monitor independent from the issuer?
  • Yes
  Comments: § 7 II PfandBG says that the cover pool monitor (and his deputy) must possess the expertise and experience, which are necessary to fulfil all duties. The qualification as certified auditor assumes that the necessary expertise is given.
6 If there is an independent cover pool monitor, what are its duties?
  • Performing audits of the cover pool
  • Reporting duties to the supervision authority
  • Verification of coverage tests
  • Other, please specify:      
  Comments: The cover pool monitor (“Treuhänder”) supervises the cover register permanently.

The cover pool monitor has to ensure that the prescribed cover for the Pfandbriefe exists at all times and that the cover assets are recorded correctly in the cover register, §§ 7, 8 PfandBG. Without his consent, no assets may be removed from the cover pool. The BaFin published a specific statutory order on details of the form and the contents of this cover register (Deckungsregisterverordnung – DeckRegV), § 5 III PfandBG.
1 Do covered bonds automatically accelerate when the credit institution goes insolvent?
  • No
  Comments: Covered bonds do not accelerate automatically. The Pfandbriefe will be satisfied according to the conditions of the issue and they will be repaid at the time of their contractual maturity.

Only the opening of a specific insolvency procedure of a cover pool can cause acceleration of the respective covered bonds (§ 30 VI PfandBG).
2 What is the cover pool?
  • All assets on the cover register
  Comments: The cover pool is a part of the general estate of the bank as long as the issuer is solvent. If the insolvency proceedings are opened, by operation of law, the assets recorded in the cover registers do not form part of the insolvency’s estate (§ 30 I 1 PfandBG). Those assets will not be affected by the opening of the insolvency proceedings (§ 30 I 2 2. HS PfandBG).

German Bundestag, Publication reference 16/13823, 21. 07. 2009:
"After insolvency proceedings are opened over a Pfandbrief bank the cover assets and Pfandbriefe together form an integrated portion of the Pfandbrief bank’s estate, which is not included in the insolvency proceedings. This portion of the bank’s assets can be referred to – as in questions 3, 7 and 8 below – as the “separate portion of the Pfandbrief bank”. This is made clear, for example, in the provisions of § 30 par. 2 sentences 5 and 6 of the Pfandbrief Act, according to which the cover pool administrator represents the Pfandbrief bank in respect of the Pfandbriefe and the cover assets. This applies to each Pfandbrief category and the associated cover pool separately."

The amendments 2010 introduced a new wording in § 30 I PfandBG to confirm this statement by parliamentary law.

The cover assets being used to cover the Pfandbriefe as well as claims under derivatives shall be recorded in the cover register (§ 5 I 1 PfandBG). By means of a statutory order (DeckRegV), the details on form and necessary content of the cover register as well as details on the registrations are stipulated (§ 5 III 1 PfandBG).

The bank carries out the administration of the cover register. It takes the appropriate measures to make sure that the prescribed cover is given at all times, § 4 IV PfandBG.

The cover pool monitor supervises the prescribed cover und registration in the cover register, § 8 I, II PfandBG. The assets recorded in the cover register – as well as the deeds relating to such assets - are safeguarded by the cover pool monitor under dual control (so called “Treuhändermitverschluss”) with the bank, § 9 PfandBG.
3 How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer?
  • Preferential claim by law
  • Specific cover pool administration
  Comments: Covered bond holders enjoy a preferential treatment in so far as the law stipulates the separation of the cover assets on the one hand and the insolvency’s estate on the other hand, § 30 I PfandBG.

First of all, covered bonds shall be fully satisfied out of the assets recorded in the cover register. Only assets remaining after the Pfandbrief creditors are satisfied and the management costs are paid, those assets must be surrendered to the insolvency’s estate (§ 30 IV 2 PfandBG). For details see V. 17.

The satisfaction of the Pfandbrief creditors is not limited to the cover assets. On the contrary, those creditors also participate in the insolvency proceedings in respect of the remaining Pfandbrief bank’s assets – there, of course, only up to the amount resulting from any default (§ 30 I 3 i.V.m. VI 4 PfandBG).

German Bundestag, Publication reference 16/13823, 21.07.2009:
"As stipulated in § 30 par. 2 of the Pfandbrief Act a cover pool administrator is appointed who manages the separate portion of the Pfandbrief bank. He may carry out all legal transactions in respect of the cover pools insofar as this is necessary for an orderly settlement in the interest of the full satisfaction of the Pfandbrief creditors.
This sweeping clause should be interpreted comprehensively and is primarily aimed at ensuring that the Pfandbrief liabilities are duly and orderly repaid, i.e. on time as they fall due. In order to achieve this aim the cover pool administrator has several options to act, in particular the following:
• He collects the claims on the cover pool and uses these to repay the Pfandbriefe (§ 30 par. 3 sentence 2 Pfandbrief Act).
• He may sell assets from the cover pool in whole or in part, individually or in portfolios in accordance with the general transfer regulations in order to raise liquidity. The Pfandbrief Act does not contain any restrictions in respect of the potential purchasers of the cover assets. The proceeds from the sale replace the cover assets which have been disposed of and belong to the separate portion of the Pfandbrief bank. They are therefore under the power of disposition of the cover pool administrator, without having been registered in the Cover Register.
• By the Act on the further development of the Pfandbrief law of 20 March 2009 (Federal Gazette I p. 607), hereafter the 2009 Amendment Act, it was clarified explicitly at § 30 par. 2 sentence 5, 2nd clause of the Pfandbrief Act that the cover pool administrator may take up a funding loan in order to raise liquidity.
• The reasons to the 2009 Amendment Act make clear that the cover pool administrator may enter into funding operations with Deutsche Bundesbank (Bundestag publication ref. 16/11130 of 1 December 2008, p. 42).
• As the cover pool administrator is permitted to sell assets from the cover pool, he is also permitted to use assets as collateral to provide security for any funding loans and transactions.
• The cover pool administrator may also amend the terms of loans used for coverage purposes and conclude derivative transactions. This was already stipulated in the reasons to the Mortgage Bank Amendment Act of 2004 (Bundestag publication reference 15/1853 of 29 October 2003, p. 19).
• The 2009 Amendment Act clarified in § 31 par. 8 of the Pfandbrief Act that the cover pool administrator can use the personnel and other resources of the Pfandbrief bank and is only obliged to reimburse the costs actually incurred to the insolvent estate.
• The cover pool administrator collects all claims payable on the assets (§ 30 par. 3 sentence 2 Pfandbrief Act). This also applies to amounts relating to portions of assets that are not included in the cover pool; these are portions of loans in excess of the loan-to-value limit set out in § 5 par. 1a of the Pfandbrief Act (60 percent or a lower limit if specified) and which are therefore not part of the cover pool; if payments by a borrower should be insufficient to service both the portion of the loan included in the cover pool and that outside the cover pool, the portion within the cover pool takes precedence (§ 30 par. 3) in conjunction with § 5 par. 1a Pfandbrief Act). The cover pool administrator also collects the claims on those portions of the loan which the Pfandbrief bank holds in fiduciary for another bank in accordance with s. 5 (1a) sentence 4 and 5 Pfandbrief Act.
• The cover pool administrator may be appointed before the insolvency proceedings over the Pfandbrief bank are opened (§ 30 par. 5) Pfandbrief Act)."

The amendments 2010 modified the wording in § 30 I PfandBG in order to make clear that the cover pools would not be part of the insolvency estate ("insolvency-free assets").
Together with the respective Pfandbriefe they form the "Pfandbriefbank with limited business activity", for which the banking licence shall be upheld (§ 2 IV PfandBG) - including the licence to issue new Pfandbriefe.

Furthermore there are specific regulations as to the sale and the transfer of mortgages respectively to other issuers.

According to § 32 I PfandBG the cover pool administrator may transfer all or a part of the assets recorded in the cover register as well as liabilities from Pfandbriefe as an entirety to another Pfandbrief bank. This transfer requires the written approval of the supervisory authority.

According to § 35 I PfandBG the cover pool administrator may agree with another Pfandbrief bank that the assets recorded in the insolvent Pfandbrief bank’s cover register may be managed in a fiduciary capacity by the insolvent Pfandbrief bank’s cover pool administrator for the other Pfandbrief bank: In that case, the other Pfandbrief bank assumes the liability for the covered liabilities of the insolvent Pfandbrief bank. This regulation could be important, because the legal transfer of mortgages in many jurisdictions needs registration producing costs and time lags.

With these two modalities, particular provisions exist, according to which assets can be more easily “transferred” – which is in fact carried out outside the normally applicable provisions of civil law, e.g. the management in a fiduciary capacity of registered land charges (so called “Buchgrundschulden”) and foreign mortgages. Both forms require a written approval of the BaFin.

In case of a partial transfer or a partial management in a fiduciary capacity, § 36 PfandBG will additionally – that means together with § 32 I or § 35 I PfandBG - be at issue: The proportion of the relevant cover pool which remains at the Pfandbrief bank must comply with the provisions concerning the cover for Pfandbriefe.

In the case of over-indebtedness or illiquidity of the cover assets the BaFin could apply for a special insolvency procedure on the cover pool and the covered bonds, regulated by general insolvency law, § 30 VI PfandBG. Before starting this insolvency procedure, the BaFin could pronounce a “moratorium” according to § 47 of the German Banking Act (Kreditwesengesetz - KWG). Then, the supervisory authority may take its measures with respect to individual cover pools.
4 Is there recourse to the credit institution’s insolvency estate upon a cover pool default?
  • Yes, pari passu with unsecured creditors
5 Are there provisions that require derivatives to continue in case of insolvency of the credit institution?
  • Yes
  Comments: The derivatives, which are registered in the cover register, form a part of the separate legal estate. The insolvency procedure has the same consequences for them like for the Pfandbriefe and they profit of the same ranking like the Pfandbriefe. § 19 I 4 PfandBG stipulates that derivatives are eligible for the cover pool only if the insolvency of the Pfandbrief issuer has no impact on the derivatives. Accordingly, the German master agreements for cover derivatives stipulate that the bankruptcy of the Pfandbrief issuer does not mark a termination event.

So far, there is no specific provision in the Pfandbrief Act, which regulates the legal situation of collateral, which is provided by the derivative counterpart or the Pfandbrief bank. But § 13 No. 6 DeckRegV regulates that such collateral has to be registered in the cover register; the consequence of this registration is that the collateral belongs to the separate portion of the Pfandbrief Bank.
6 If derivatives are permitted in the cover pool, what is their ranking?
  • Pari passu to covered bond holders
1 Does the covered bond fulfil the criteria of UCITS 52(4)?
  • Yes
2 For further information regarding the compliance to the criteria of Article 129 of the Capital Requirements Regulation (CRR), please see the following links: http://ecbc.hypo.org/Content/default.asp?PageID=504#position https://www.coveredbondlabel.com
  • Yes
  Comments: German PfandBG is compliant with Art. 129 CRR. This was confirmed by German Government in the reasons to the amendments 2014 - regarding Mortgage, Public Sector and Ship Pfandbriefe.
3 Are listed covered bonds eligible in repo transactions with the national central bank?
  • Yes
4 Are there any special investment regulations regarding covered bonds?
  • Yes
  Comments: There are several regulations. For example, German investment legislation allows investment funds to invest up to 25% of the fund’s assets in Pfandbriefe and furthermore in Covered Bonds issued by credit institutions complying with the requirements of Art. 22 par. 4 UCITS Directive (Article 60 par. 2 German Investment Act).
1 Link to National Association representing covered bond interests
2 Link to national regulators and supervisors
3 Fact Book Country Chapter
  • Chapter
 
4 Hypostat Country Chapter
  • Chapter