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- Australia
- Australian Covered Bonds
- Austria
- FBS - Fundierte Bankschuldverschreibungen
- Pfandbriefe
- Belgium
- Draft Belgian CB Framework
- Bulgaria
- Bulgaria
- Canada
- Canada
- Cyprus
- Cyprus CBs
- Denmark
- Realkreditobligationer - RO
- Særligt Dækkede Obligationer - SDO
- Særligt Dækkede Realkreditobligationer - SDRO
- Finland
- Finland
- France
- CRH
- General Law Based CBs
- Obligations Foncières
- Obligations à l'Habitat
- Germany
- Pfandbriefe
- Greece
- Greece
- Hungary
- Hungary
- Ireland
- Asset Covered Securities
- Italy
- Obbligazioni Bancarie Garantite
- Luxembourg
- Lettres de Gage hypothécaires
- Lettres de Gage mobilières
- Lettres de Gage publiques
- Netherlands
- Dutch registered CBs programmes
- Norway
- Norway
- Poland
- Polish CBs
- Portugal
- Mortgage CB (Obrigações Hipotecárias)
- Public Sector CB (Obrigações sobre o Sector Público)
- Romania
- Obligatiuni Ipotecare - Mortgage Covered Bonds
- Russia
- Mortgage Obligations
- Slovakia
- Slovakia
- Spain
- Cédulas Hipotecarias
- Sweden
- Sweden
- Switzerland
- Credit Suisse CB
- Swiss Pfandbriefe
- UBS CB
- Turkey
- Turkey
- United Kingdom
- Regulated Covered Bonds
- United States
- US Covered Bond
Select Chapter(s)
- I. STRUCTURE OF THE ISSUER
- II. FRAMEWORK
- III. COVER ASSETS
- IV. VALUATION OF THE MORTGAGE COVER POOL & LTV CRITERIA
- V. ASSET-LIABILITY GUIDELINES
- VI. COVER POOL MONITOR & BANKING SUPERVISION
- VII. SEGREGATION OF ASSETS & BANKRUPTCY REMOTENESS OF COVERED BONDS
- VIII. RISK WEIGHTING & COMPLIANCE WITH EUROPEAN LEGISLATION
- IX. ADDITIONAL INFORMATION
| Questions | Asset Covered Securities | Bulgaria | Canada | Cédulas Hipotecarias | CRH | Dutch registered CBs programmes | Finland | General Law Based CBs | Greece | Hungary | Mortgage CB (Obrigações Hipotecárias) | Mortgage Obligations | Norway | Obbligazioni Bancarie Garantite | Obligations Foncières | Pfandbriefe | Pfandbriefe | Polish CBs | Public Sector CB (Obrigações sobre o Sector Público) | Regulated Covered Bonds | Slovakia | Sweden | Turkey | UBS CB | US Covered Bond |
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| I. STRUCTURE OF THE ISSUER | |||||||||||||||||||||||||
| 1. Who is the issuer? |
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| (1) Comments: The specialised credit institution is known in the Asset Covered Securities (ACS) framework as a Designated Credit Institution (DCI). DCIs are further designated as a Designated Mortgage Credit Institution, Designated Commercial Mortgage Credit Institution, or a Designated Public Credit Institution to issue each particular types of ACS. DCIs can be authorised to issue more than one type of ACS, though maintaining separate cover pools for each. | (2) Comments: Banks only are eligible to issue Mortgage-backed Bonds | (3) Comments: [Issuers are currently all OSFI (Office of the Superintendent of Financial Instituitons) regulated Canadian financial institutions] | (4) Comments: The ‘special license’ is a registration by the Dutch Central Bank of the programme under the Dutch covered bond regulation. See question VI.1 below. | (5) Comments: The issuer is a duly licensed credit institution but with a limited purpose. |
(6)
Comments: : Greek law provides for three structures for the issuance of covered bonds: (a) direct issuance by the credit institution which maintains ownership of the cover pool; (b) direct issuance by the credit institution and guarantee by an SPE which acquires ownership of the cover pool; (c) issuance by an SPE which acquires ownership of the cover pool, while the credit institution provides a guarantee. Currently all outstanding covered bonds are based on structure (a). All covered bonds issued under structure (b) have now been redeemed, and it is expected that the regulator will not consider favorably the use of structure (c). |
(7) Comments: Mortgage Credit Institutions (MCI) | (8) Comments: Issues by SPVs possible, but will not be looked after here. | (9) Comments: Covered bond issuers have to fulfil stricter requirements than those applicable to other credit institutions. | (10) Comments: Sociétés de crédit foncier ("SCFs") are the French special-law based covered bonds issuers. They are governed by Article L.515-13 and seq. of the French Monetary and Financial Code (the "Code") relating to SCFs and, as credit institutions, by the general banking regulation including Regulation 97-02 of 21 February 1997 relating to internal control in credit institutions and investment companies. | (11) Comments: Since the PfandBG 2005, the issuer does not need to be a specialised bank | (12) Comments: Apart from the mortgage banks, also 1 state bank (Bank Gospodarstwa Krajowego) is allowed to issue covered bonds in Poland. | (13) Comments: Mortgage Credit Institutions (MCI). | (14) Comments: Authorised Credit Institution | (15) Comments: Banks and mortgage finance corporations with a licence from the Capital Markets Board can issue. |
(16)
Comments: Issued via UBS London branch, guaranteed by UBS Hypotheken AG |
(17) Comments: Special Purpose Vehicle (SPV, for example in the from of a Delaware statutory trust). | |||||||||
| 2. Does the bondholder have recourse to the credit institution? |
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| (18) Comments: The assets recorded as of the date of declaring the bank bankrupt in the register of the mortgage-backed bonds cover in case of declaring the issuing bank bankrupt shall not be included in the bankruptcy estate. | (19) Comments: direct recourse to CRH, indirect recourse to borrowing credit institutions | (20) Comments: Direct to the Issuer which is a credit institution by benefiting of a pledge over all its assets and indirect one towards the originator/sponsor bank |
(21)
Comments: Depending on which of the above structures is used: Yes, direct for structures (a) and (b) Yes, indirect for structure (c). |
(22)
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. |
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| 3. Who owns the cover assets? |
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| (23) Comments: The cover assets are sold to a bankruptcy remote, special purpose entity – the Guarantor. The Guarantor is typically consolidated on the Issuer's balace sheet | (24) Comments: borrowing credit institution, but pledged to CRH that becomes fully owner of them in case of default because of specific provisions of French law governing CRH | (25) Comments: Legally the assets are owned by the SPE. From an accounting perspective the assets remain on the consolidated balance sheet of the issuer. Despite the legal transfer of the assets to the SPE, the issuer is still carrying the credit risk of the assets. | (26) Comments: Assets automatically transferred to the Issuer upon default of originator/sponsor bank as pledge of assets (financial guarantee) based on European collateral directive (L 211-36 and Seq French Financial Monetary Code) which supersedes general insolvency law |
(27)
Comments: Depending on which of the above structures is used: The issuer directly for structure (a) SPE which guarantees the covered bonds for structure (b) and the credit institution guarantees the cover bonds for structure (c). |
(28)
Comments: The cover assets are transferred to an SPE; however they remain on the issuer’s balance sheet under IFRS. SPE is, generaly, a Limited Liability Partnership (LLP) |
(29) Comments: Guaranteed by UBS Hypotheken AG |
(30)
Comments: To secure its obligations under the mortgage bonds, a sponsor bank grants a first priority perfected security interest in the cover pool to a MBIT for the benefit of the mortgage bond investors. The SPV grants a first priority perfected security interest in the covered bond collateral to a CBIT for the benefit of the covered bond investors. |
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| 4. Is the issuer the originator of the assets? |
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| (31) Comments: In general the issuer would be the originator of the assets. However, within a group situation assets may be transferred from a parent to its subsidiary Designated Credit Institution. An issuer may also purchase assets on the secondary market. | (32) Comments: Acquired assets (mortgage loans) also may be included in the cover pool despite not originated by the issuer. | (33) Comments: All issuers are required to publish rating agency and investor reports monthly or quarterly under their programme documents. | (34) Comments: There may be additional originators from the issuer's group. In addition, the issuer and such additional originators may have acquired assets from other originators. | (35) Comments: The originator is the sponsor bank. The Issuer is fully-owned by the sponsor bank and bears the name of the sponsor bank ie BNP Paribas Home Loan Covered Bonds (SA) |
(36)
Comments: Depending on which of the above structures is used: Yes for structures (a) and (b) No for structure (c). As mentioned above the Greek legislative framework permits the issuance of covered bonds in the three ways set out above. In structure (a) the covered bonds are issued by a credit institution and the segregation of the cover pool is achieved through a statutory pledge over the cover pool assets. In structure (c) the covered bonds are issued by a special purpose entity being a subsidiary of a credit institution, which purchases the cover assets from the credit institution by virtue of the provisions of the Bond Loan and Securitization Law, and are guaranteed by the credit institution. Structure (b) is similar to structure (b) in that the cover assets are transferred to an SPE by virtue of the provisions of the Bond Loan and Securitization Law, but the covered bonds are issued by the credit institution based on a guarantee by the SPE. The reason for introducing structures (b) and (c) was that historically most Greek banks had issued a significant amount of notes under medium term note (MTN) programmes containing negative pledge covenants, which did not allow the creation of security over the cover pool, as is necessary for the direct issuance of covered bonds. All Greek banks having MTN programmes have now amended the terms of such programmes to carve out the security provided to holders of covered bonds from the scope of the negative pledge covenants. All covered bonds issued under structure (b) have now been redeemed and all others have used structure (a). |
(37) Comments: Loans are originated partly by the issuer, partly acquired from parent bank or from another bank. | (38) Comments: Although it is not mandatory by law, Italian covered bonds are generally issued on assets originated within the issuer's banking group. | (39) Comments: Under Article L.515-13 of the Code, SCFs are allowed either to grant or to buy mortgage loans or exposures on public sector but generally, they are not the originator of the assets. | (40) Comments: If the assets are transferred from the Parent House to a Mortgage Credit Institution (Specialized credit institution), the Issuer is not the originator of the assets. | (41) Comments: Nearly all Regulated cover pools are made up of UK residential mortgages originated by the issuer or a subsidiary. However the Covered Bond Law allows acquired assets to be included in the cover pool as well. | (42) Comments: Investor reporting and reporting to the Capital Markets Board is mandatory but a public disclosure is not specifically addressed in the sense that it is referred under the Pfandbriefe Act. | ||||||||||||||
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(43)
Global comments for this chapter:In Greece, the primary legal basis for covered bond issuance is article 91 of Law 3601/2007 “On the Undertaking and Exercise of Activities by Credit Institutions, Sufficiency of Own Funds of Credit Institutions and Investment Services Undertakings and Other Provisions”, which entered into force on 1 August 2007 (the “Primary Legislation”) and as amended by article 48 of law 3693/2008 and article 69 of law 2746/2009. The Primary Legislation supersedes general provisions of law contained in the Civil Code, the Code of Civil Procedure and the Bankruptcy Code. By way of implementation of the Primary Legislation and pursuant to an authorization provided by the latter, the Governor of the Bank of Greece has issued Act nr. 2598/2.11.2007, subsequently replaced by Act nr. 2620/28.8.2009 (the “Secondary Legislation”). Finally, the legislative framework in Greece is supplemented by Law 3156/2003 “On Bond Loans, Securitization of Claims and of Claims from Real Estate” (the “Bond Loan and Securitization Law”), to the extent that the Primary Legislation cross-refers to it. |
(44) Global comments for this chapter:Overall there are significant changes in the covered bond legislation under discussion. | ||||||||||||||||||||||||
| II. FRAMEWORK | |||||||||||||||||||||||||
| 1. Are the bonds governed by a special covered bond Legislation? |
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| (45) Comments: Law on Mortgage-backed Bonds ("Закон за ипотечните облигации") | (46) Comments: Yes, dedicated to CRH | (47) Comments: This questionnaire reflects all Dutch covered bond programmes as registered by the Dutch Central Bank under the Dutch covered bond regulation, and as listed under question IX.2 below, as at the date of this questionnaire, being 18 February 2011. As the Dutch covered bond regulation is principles-based and the more detailed provisions can be found in the registered Dutch covered bond programmes themselves, this questionnaire reflects the position of the Dutch covered bond regulation as implemented by the registered Dutch covered bond programmes as at the date hereof. | (48) Comments: However, Bondsholders benefit from a pledge governed by French Civil code over all the Issuer's assets which allow them to have a contractual privilege, instead of legal one, over them. | (49) Comments: Act no. XXX of 1997 on Mortgage Banks and Mortgage Bonds |
(50)
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 and 2010. 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). |
(51) Comments: Law 5582 "Law Amending the Laws Related to the Housing Finance System" enacted on 21 February 2007 and by-law on Turkish Mortgage Covered Bonds (İTMK) released by the Capital Markets Board (Serial: III, No:33) on 4 August 2007. | |||||||||||||||||||
| 2. What is the legal framework for bankruptcy of the issuer of covered bonds? |
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| (52) Comments: The Law on Mortgage-backed Bonds and the Law on bank bancruptcy applied. | (53) Comments: The specific legal framework defined in the Law 2/81 that regulates the mortgage market complements the general insolvency law. | (54) Comments: An insolvency of the issuer does not result in an insolvency of the SPE owning the cover pool. | (55) Comments: included in the Mortgage Credit Bank legislation | (56) Comments: To be underlined : the transposition of the Collateral directive implemented to pledge the assets supersedes the common insolvency law : the assets may be transfered even if the originator is already bankrupt. |
(57)
Comments: Credit institutions are in theory subject to either bankruptcy under the Bankruptcy Code or special liquidation administered by the regulator (the Bank of Greece). The special liquidation regime takes precedence over the bankruptcy proceedings in the sense that even if a credit institution is declared bankrupt, the bankruptcy proceedings will stop if it is placed in special liquidation. In practice it is considered that the regulator would never permit a credit institution to become subject to bankruptcy under the Bankruptcy Code, but would submit it to special liquidation. The primary legislation on covered bonds deviates from both the provisions of the Bankruptcy Code and the provisions on special liquidation. |
(58) Comments: The Mortgage Bank Act contains the special insolvency rules. | (59) Comments: A specific was to be enacted, but wasn't. New legislation under discussion. |
(60)
Comments: The special bankruptcy regime applicable to the SCF results from Articles L.515-19 and Articles L.515-25 to L.515-27 of the Code. The main features of this regime are as follow: -the judicial liquidation of a SCF does not accelerate the payment of the privileged debts of the SCF that are paid on their contractual due date and with priority over all other debts. -until the privileged debtors are fully paid off, no other creditor of the SCF may avail itself of any right over the SCF's property and rights. -the judicial reorganisation or liquidation of a company holding shares in the SCF can’t be extended to the SCF. As a result, SCFs are totally bankruptcy remote and enjoy full protection from the risks of default by their parent company or by the group to which they belong. |
(61) Comments: Not superseding, but additional to the general insolvency law | (62) Comments: §§ 30 – 36 PfandBG | (63) Comments: The Covered Bond Law amends certain provisions of the general insolvency law | (64) Comments: There is a combination of legal framework for bankruptcy of the issuer of covered bonds – Act on banks, amendments (i.e. § 72 (4)) and Act on bankruptcy (i. e. § 8, § 28 (2), § 69, § 176 – 196), amendments. | (65) Comments: The Covered Bond Issuance Act was amended in 2010 giving the administrator-in-bankruptcy an express mandate, on behalf of the bankruptcy estate, to take out liquidity loans and enter into other agreements for the purpose of maintaining matching between the cover pool, covered bonds and derivative contracts. The administrator has an extensive mandate to enter into agreements, not only to achieve a liquidity balance but also to achieve a balance in respect of currencies, interest rates and interest periods. | (66) Comments: In the event of issuer bankruptcy, until the İTMK are paid a Manager is appointed. The assets that are registered in the cover register are segregated. |
(67)
Comments: General Insolvency Law (and Banking ordance) |
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| (68) Global comments for this chapter:For the issues unsettled by the superseding legal acts, the general insolvency law shall govern. |
(69)
Global comments for this chapter:In case of a direct issuance (structure (a)) the cover assets are segregated from the remaining estate of the credit institution through a pledge constituted by operation of law (statutory pledge). In case of assets governed by a foreign law (which will typically include inter alia claims from derivative contracts) a security interest must be created in accordance with such foreign law. The statutory pledge and the foreign law security interest secure claims of the holders of covered bonds and may also secure (in accordance with the terms of the covered bonds) other claims connected with the issuance of the covered bonds, such as derivative contracts used for hedging purposes. The statutory pledge and any foreign law security interest is held by a trustee for the account of the secured parties.The claims constituting cover assets are identified by being listed in a document signed by the issuer and the trustee. A summary of such document is registered in the land registry of the seat of the issuer. Claims may be substituted and additional ones may be added to the cover pool through the same procedure.The Primary Legislation creates an absolute priority of holders of covered bonds and other secured parties over the cover pool. The statutory pledge supersedes the general privileges in favor of certain preferred claims (such as claims of employees, the Greek state and social security organization) provided for by the Code of Civil Procedure. Furthermore upon registration of the summary of the document listing the claims included in the cover pool, the issuance of the covered bonds, the establishment of the statutory pledge and the foreign law security interest and the entering into of all contracts connected with the issuance of the covered bonds are not affected by the commencement of any insolvency proceedings against the issuer. In case of structures (b) and (c) the cover pool assets are segregated from the estate of the credit institution by virtue of their sale to the special purpose entity. For such transfer the provisions of the Bond Loan and Securitization Law apply, which provide equivalent protection from third party creditors and insolvency to the one the Primary Legislation provides in case of direct issuance. It is worth noting that according to the Primary Legislation both in case of direct and of indirect issuance the cover assets may not be attached. This has the indirect result that the Greek law claims constituting cover assets are no longer subject to set-off, because according to article 451 of the Greek Civil Code claims which are not subject to attachment are not subject to set-off. This is important because under generally applicable law borrowers the loans to whom become cover assets would have had a right to set-off, which would reduce the value of the cover pool, for all counterclaims (including notably deposits) predating the creation of the pledge or the transfer of the claims, as the case may be. No specific provisions exist in relation to voluntary overcollateralisation. As a result the segregation applies to all assets of the cover pool, even if their value exceeds the minimum required by law. The remaining creditors of the credit institution will only have access to any remaining assets of the cover pool after the holders of the covered bonds and other creditors secured by the cover pool have been satisfied in full. |
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| III. COVER ASSETS | |||||||||||||||||||||||||
| 1. What types of assets may be included in cover pools? |
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(70)
Comments: Mortgage loans of the issuing bank are the Principal cover. As a substitute cover for partially or fully repaid loans the issuing bank may include the following of its assets in the Mortgage-backed Bonds (substitution cover): 1. cash or funds on account with the Bulgarian National Bank and/or commercialbanks; 2. claims on the Government of the Republic of Bulgaria or the Bulgarian NationalBank, and claims fully secured by them; 3. claims on governments or central banks of states as determined by the BulgarianNational Bank; 4. claims on international institutions as determined by the Bulgarian National Bank; 5. claims fully backed by government securities issued by the Government of theRepublic of Bulgaria, the Bulgarian National Bank, the governments, central banks orinternational institutions listed in items 3 and 4; 6. claims secured by gold; 7. claims fully backed by bank deposits denominated in Bulgarian levs or in aforeign currency for which the Bulgarian National Bank quotes daily a central exchangerate. |
(71)
Comments: The Canadian covered bond programs can, and in certain cases currently do include either a portion or 100% Canadian government insured residential mortgages. Canadian dollar denominated residential mortgage backed securities and short term provincial and federal bonds and money market securities can form part of the cover pool as substitute assets / authorized investments, up to a maximum of 10% of the C$ equivalent of the outstanding Covered Bonds |
(72) Comments: According to the national law, the cédulas hipotecarias can be backed up to a limit of 5 percent of the issued capital by the substitution assets that, among the differ options described above, may include: public debt and covered bonds & MBS issued by other entities. | (73) Comments: The Dutch covered bond regulation allows a range of assets to be included in the cover pool. In practice all cover pools consist of residential mortgage loans and allow for inclusion of substitution assets, meaning euro-denominated (i) cash and (ii) subject to minimum rating and maximum percentage requirements (this differs per programme), other assets eligible under the CRD to collateralise covered bonds. | (74) Comments: other types of assets are allowed as substitute assets |
(75)
Comments: Cover assets are primarily residential mortgage loans, loans secured by a mortgage on commercial properties, loans secured by a mortgage on ships and loans to or guaranteed by state entities and derivatives. The above assets form the basis of the cover pool. The cover assets may be substituted by certain tradable assets but only up to the amount by which the aggregate nominal value of the cover assets including accrued interest exceeds the nominal value of the outstanding covered bonds including accrued interest. |
(76) Comments: The outstanding mortgage bonds shall always be covered up to 80 per cent by loans secured by mortgages (“jelzálogjog”), independent mortgage liens (“önálló zálogjog”) or by joint and several surety assumed by the Hungarian State (“állami készfizető kezességvállalás”). In fact, the portfolios of Hungarian mortgage banks consist almost exclusively of residential mortgage loans. |
(77)
Comments: Mortgage loans (Credit loans guaranteed by first mortgages created upon real-estate; Credits guaranteed by lower ranking mortgages are also elegible provided that all credits benefiting from a higher ranking mortgage on the asset are held by the issuer and assigned to the asset pool and credits guaranteed by surety from a credit institution or by an adequated insurance contrat, counter guaranteed by a mortgage). The Pool may also contain substitution assets up to 20% : Deposits with the Bank of Portugal in the form of cash, government bonds or bonds eligible for credit operations within Central Banks European System ( could include Senior MBS eligible within the scope of credit operation of Eurosystem); Time deposits in credit institutions with a minimum “A-” rating and or Other low risk and high quality assets to be defined by the Bank of Portugal. |
(78) Comments: Additional cover by state bonds or cash is possible. | (79) Comments: Exposures to public sector entities, mortgages, derivative contracts, and substitute assets. Substitute assets may not exceed 20 % of cover pool and may include: covered bonds and MBS issued in an EEA country, and which qualify for credit quality step 1, as well as government bonds and other highly liquid and secure assets. Total exposure to banks (derivatives and substitute assets) may not exceed 15 % of cover pool. | (80) Comments: Exposures on public sector entities under leasing format are also allowed. |
(81)
Comments: Point 1 and 3 for Public Pfandbriefe; Point 2 and 3 for Mortgage Pfandbriefe; |
(82)
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. |
(83)
Comments: The Cover Pool may contain credit assets over the central administration, regional or local authorities as well as credits secured by an express and legally binding guarantee issued by any of such entities. Senior MBS eligible within the scope of credit operation of Eurosystem. The Pool may also contain substitution assets up to 20% : Deposits with the Bank of Portugal in the form of cash, government bonds or bonds eligible for credit operations within Central Banks European System ( could include Senior MBS eligible within the scope of credit operation of Eurosystem); Time deposits in credit institutions with a minimum “A-” rating and or Other low risk and high quality assets to be defined by the Bank of Portugal. |
(84) Comments: RMBS are not allowed in the cover pool unless they are (a) AAA-rated and (b) they are originated by a UK credit institution which is an affiliate of the issuer |
(85)
Comments: Exposures to credit institutions can be included as substitute assets. Substitute collateral may not exceed 20 percent of the cover pool. In special circumstances, Finansinspektionen may, in an individual case, allow the proportion of substitute collateral to be at most 30 percent of the cover pool during a limited period of time. Mortgage loans that have been granted against a pledge over real property, site leasehold rights or tenant-owner rights that are intended for office or commercial purposes may not exceed 10 percent of the cover pool. |
(86) Comments: Residential and commercial mortgage loans are included in the collateral. Upto 15% of substitute collateral may include, cash deposits with OECD or Turkish central banks, short term debt issued by Central Bank of Turkey, or debt instruments with a treasure reimbursement state guarantee, or any other substitute collateral that may be approved by CMB of Turkey. |
(87)
Comments: Mortgage loans to private individuals. Substitute assets may also include exposures to publc sector entities). |
(88)
Comments: Residential mortgages and home equity lines of credit originated or acquired by the sponsor bank, debt issued or guaranteed by 0% risk-weighted public sector entities, exposures to 10% or 20% risk-weighted entities, cash and triple-A rated US$-denominated RMBS. The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds. |
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| 2. What is the geographical scope for public sector assets? |
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| (89) Comments: Listed in items 3 & 4 in III.1 above | (90) Comments: Canada only | (91) Comments: In the case of cédulas hipotecarias the scope is the EU | (92) Comments: not relevant | (93) Comments: The Dutch covered bond regulation allows a range of assets to be included in the cover pool. In practice all cover pools consist of residential mortgage loans and allow for inclusion of public sector assets as substitution assets if such public sector assets are eligible under the CRD to collateralise covered bonds. | (94) Comments: NA for existing programmes as all home loan programmes |
(95)
Comments: Domestic and other EU public sector assets are eligible without further requirements. Assets of the following multilateral development banks are eligible: International Bank for Reconstruction and Development, International Finance Corporation, Inter-American Development Bank, Asian Development Bank, African Development Bank, Council of Europe Development Bank, Nordic Investment Bank, Caribbean Development Bank, European Bank for Reconstruction and Development, European Investment Bank, European Investment Fund, Multilateral Investment Guarantee Agency, International Finance Facility for Immunisation and Islamic Development Bank. The eligibility of non-EU public sector assets depends on the credit rating of the issuer and on the currency of the relevant asset. |
(96) Comments: Public sector assets do not qualify as eligible assets. | (97) Comments: No public secotr assets. | (98) Comments: Others are, as more described in Article L.515-15 of the Code, Central administrations and Central banks not belonging to the above mentioned geographic scope but to States qualifying as a minimum for the credit quality assessment step 1 (step 2 up to 20% of the privileged liabilities) by a rating agency recognised by the French banking supervisor. |
(99)
Comments: Domestic assets for municipalities loans (Polish Covered Bond and Mortgage Banks Act, Art.3 para 4). Polish Covered Bond and Mortgage Banks Act, Ariticle 3. para 2. A public mortgage bond is a registered or bearer security issued on the basis of receivables of a mortgage bank arising from: 1) credits within the secured part with due interest, a guarantee or surety of the National Bank of Poland, the European Central Bank, governments or central banks of the EU Member States, the Organisation for Economic Cooperation and Development, except for states which are currently in the process of restructuring of restructured their foreign debts during the last 5 years, as well as a guarantee or surety of the State Treasury in accordance with provisions of separate laws; or 2) credits granted to entities listed in point 1); or 3) credits in the secured part with due interest, a guarantee or surety of local government units and credits granted to such local government units. |
(100) Comments: “Other” refers to Channel Islands and Isle of Man | (101) Comments: Not Applicable | (102) Comments: not applicable. (Can only be used as substitute assets). | (103) Comments: The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds. | |||||||||||
| 3. What is the geographical scope for mortgage assets? |
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| (104) Comments: Not restricted by the law, rather depends on the banks lending policies and possibility to establish pledge over the specific asset if not domestic. | (105) Comments: Canada Only | (106) Comments: In the case of cédulas hipotecarias the scope is the EU | (107) Comments: France only | (108) Comments: Both the Dutch covered bond regulation and all covered bond programmes allow for inclusion of non-Dutch residential mortgage loans, subject to certain restrictions. In practice all cover pools consist of Dutch residential mortgage loans and, in one programme, also German residential mortgage loans. |
(109)
Comments: Residential and commercial mortgage loans may only be included in the cover pool if the property subject to the mortgage is situated in Greece and hence is governed by Greek law. There is currently an ongoing discussion about permitting the inclusion of foreign mortgage loans. |
(110) Comments: No EEA country mortgage loans other than secured by a real property located in the territory of Hungary are yet granted, or included into the cover pools of Hungarian mortgage banks. This will be first an option after 1st of January 2010. | (111) Comments: EEA and OECD countries (today mainly domestic) | (112) Comments: Others are States not belonging to the above ticked geographic scope but qualifying as a minimum for the credit quality assessment step 1 by a rating agency recognised by the French banking supervisor. |
(113)
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. 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). |
(114) Comments: “Other” refers to Channel Islands and Isle of Man | (115) Comments: The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds. | ||||||||||||||
| 4. Are regular covered bond specific disclosure requirements to the public mandatory? |
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(116)
Comments: DCIs are required to disclose certain information in their annual accounts. A Designated Mortgage Credit Institution or Designated Commercial Mortgage Credit Institution must disclose: • Mortgage accounts and principals outstanding on the mortgage cover pool • Geographical location and details of the pool • Pool accounts in default at year end • The number of non-performing mortgage credit assets replaced during the financial year • The total amount of interest in arrears in respect of mortgage credit assets that has not been written of at the end of the financial year • The total amount of payments of principal and interest repaid in respect of mortgage credit assets A Designated Public Credit Institution must disclose the names of countries for the location of those assets, the number of assets, and percentage of overall pool. |
(117)
Comments: Only in case of listed (Stock Exchange traded) Mortgage Bonds. The banks disclose information according to specific legal requirements as well. Under the general provisions of the Law on Mortgage-backed Bonds: - The issuing bank shall keep a public register of the cover of mortgage-backed bonds issued by it. - The register shall be kept separately by mortgage-backed bonds issue. - The issuing bank shall adopt internal rules on the contents, the entry and deletion procedures and the keeping of the register. - The issuing bank shall adopt internal rules on the terms and procedure authorizing access to the register. |
(118) Comments: All issuers are required to publish rating agency and investor reports monthly or quarterly under their programme documents. | (119) Comments: Under all covered bond programmes the issuer is obliged to frequently send out investor reports that contain detailed information about, among other things, the cover pool transferred to the SPE and the performance of the asset cover test. Each year the SPE is required to produce audited financial statements. | (120) Comments: They are done on a quarterly and yearly basis to the market through reports accessible to investors on a dedicated website. |
(121)
Comments: Credit institutions that issue (directly or indirectly) covered bonds must provide in their financial statements and on their websites information on the covered bonds including on the nominal value and net present value of the bonds and the cover pool, the net present value of derivatives used for hedging. More particulary, pursuant to part ΙV of the Secondary Legislation there are the following disclosure requirements to the Bank of Greece until the end of March of each year in relation to data as of end of December of the year preceding: a) The certified by chartered accountant / auditor results arisen following the audit conducted pursuant to the provisions of the Secondary Legislation and following the follow-up of processes and restrictions as set by the Secondary legislation. Any detailed presentation of data, methods and parameters used should also be mentioned. b) Detailed data of the cover pool assets that would confirm the restrictions set under the Secondary Legislation along with the information related to the real estate’s revaluation of the mortgages and other loans. c) The following data and information: (i) weighted average interest-rate per category of assets and weighted average interest-rate of all cover pool assets (ii) the real estate values of the mortgages and of the other loans, (iii) validation of the selected policy of risk hedging with detailed analysis of the degree of effectiveness of this (iv) table of corresponding maturities of the covered bonds and corresponding assets of the cover pool and the derivatives. Finally all the credit institutions have to communicate to the Bank of Greece, within 30 days from the expiry of each quarter, with data of 1st, 2nd and 3rd quarter end, concise information with regards to the results from the tests provided under the Secondary Legislation. In case the covered bonds are disposed by public offer, in such case law 3401/2005 is applicable (law 3401/2005 is the prospectus law which transposed the prospective Directive 2003/71/EC) along with the Commission Regulation 809/2004. |
(122)
Comments: Yes, in details regulated in § 28 PfandBG. View VI.2. In 2009 § 28 (1) No. 2 PfandBG was amended so that now additionally the maturity structure has to be published in yearly bands from 1 to 5 years on a quarterly basis. |
(123) Comments: Based on Art. 26 of the Polish Covered Bond and Mortgage Banks Act and various obligations from the Trading in financial instruments act. | (124) Comments: All issuers are required to publish investor reports monthly or quarterly under their programme documents. | (125) Comments: But limited to investors and CMB of Turkey. | (126) Comments: The FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds require a sponsor bank / SPV to disclose some information. However, the existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds. | |||||||||||||||
| (127) Global comments for this chapter:Where a DCI is authorised to issue more than one type of ACS, the different asset classes (Public Sector, Mortgage, and Commercial Mortgage) must be maintained in separate cover pools. | (128) Global comments for this chapter:In addition to the above mentioned assets, SCFs are allowed to hold replacement assets up to 15% of the amount of their outstanding privileged debt issued(covered bonds and other debt issued benefiting from the privilège of Article L515-19 of the Code). Replacement assets are defined as sufficiently secure and liquid assets as more described in Articles L.515-17 and R.515-7 of the Code. | ||||||||||||||||||||||||
| IV. VALUATION OF THE MORTGAGE COVER POOL & LTV CRITERIA | |||||||||||||||||||||||||
| 1. LTV is calculated using which valuation?[4] |
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(129)
Comments: The valuation methods that are provided for in the Law on Mortgage-backed Bonds are: - the market approach (comparison method) - the revenue method and - the depreciated replacement cost method |
(130) Comments: LTV calculated based on appraised market value at origination. Indexing is not factored into the ACT calculation |
(131)
Comments: provisions of French Banking Comitee regulation 99-10 relative to sociètés de crédit foncier chapter 1 |
(132) Comments: For the LTV cut-off percentages referred to in questions IV.2 and 3 below, all covered bond programmes use the market/indexed value. For the eligibility LTV cap referred to in question IV.4a below, all covered bond programmes use the foreclosure value at origination. | (133) Comments: market value at the moment of granting mortgage loan | (134) Comments: indexation applied (80% of increase in value 100% of decrease) | (135) Comments: The valuation of properties must be performed by an independent valuer at or below the market value and must be repeated every year in relation to commercial properties and every three years in relation to residential properties. | (136) Comments: Special mortgage lending value calculation methods are applicable for mortgage banks. | (137) Comments: Prudent market value | (138) Comments: According to Regulation 99-10 relating to SCFs, real estate properties are valued on a yearly basis. They are valued conservatively, excluding any element of a speculative nature. Valuations have to be made on the basis of the lasting, long-term characteristics of the real estate properties, normal market and local conditions, the current use of the real estate and other uses to which it could be assigned. This mortgage lending value shall be determined clearly and transparently in writing and may not exceed the market value. |
(139)
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. |
(140) Comments: LTV doesn’t apply to Public Sector Bonds. The nominal value of the public loans is value to be considered to enter the pool (LTV = 100%). | (141) Comments: All Regulated Covered Bond programmes use market value at origination, subject to partial indexation. If prices go up, the property value is increased by 85% of the increase. If they go down, the value is reduced by 100% of the decrease. | (142) Comments: Market value based on latest valuation. | (143) Comments: In accordance with the respective programme terms, a mortgaged property’s value is the value given to the property by the sponsor bank adjusted by changes of the Office of Federal Housing Enterprise Oversight House Price Index. | |||||||||||
| 2. Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)? |
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| (144) Comments: Housing units, including leased out - at a maximum of 80% of the mortgage apraisal; villas, seasonal and holiday housing, as well as commercial and administrative office space, hotels, restaurants and other smilar real estates, industrial and warehousing premises may participate in the calculation with maximum 60% of the mortgage appraisal. | (145) Comments: For the purposes of the Asset Coverage Test a maximum of 80% LTV (uninsured mortgages) and 90% LTV (insured mortgages) is factored into the calculation of the Adjusted Aggregate Loan Amount |
(146)
Comments: LTV limits in the Spanish legislation do not apply to the cover pool (which is comprised by the entire issuer’s mortgage portfolio) but to issuance limits. Credit institutions shall not issue Cédulas Hipotecarias for an amount greater than 80 per 100 of the outstanding eligible mortgage loans and credits in their portfolios, which have to fulfil the following LTV requirements: 60 per 100 LTV in the general case and 80 per 100 for residential loans. |
(147) Comments: All covered bond programmes apply an 80% LTV cut-off percentage. Some covered bond programmes apply a 100% or different LTV cut-off percentage for residential mortgage loans that have the benefit of a Dutch National Mortgage Guarantee (Nationale Hypotheek Garantie) or of a credit risk insurance policy. | (148) Comments: Based on “mortgage lending value” | (149) Comments: There is no separate methodology used solely for calculating collateralisation rates for the cover pool. | (150) Comments: Buildings under construction not more than 10% of the cover pool. |
(151)
Comments: Pursuant to Article R.515-2 of the Code, a mortgage or guaranteed loan can only be refinanced by privileged debts in the limit of the smallest following amount : - the outstanding principal amount of the loan, - the product of the financing share of the loan and the value of the real estate. The financing share of the loan is equal to: - 60 per cent of the value of the real estate given in guarantee, - 80 per cent of the value of the real estate given in guarantee when the loan has been granted to individuals in order to finance the building or the acquisition of a housing or in order to finance the acquisition of the building land and the construction of the housing. - 100 per cent of the value of the real estate when the loan benefit from the guarantee of the Guarantee Fund for Social Home Ownership (FGAS). The acquisition by a SCF of senior units of RMBS is subject to similar rules as more described in Article 5.515-4 of the Code. |
(152) Comments: 60% |
(153)
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. |
(154) Comments: LTV doesn´t apply to Public Sector Bonds. |
(155)
Comments: Residential 60%, 75%, 80% Commercial 60%, 70% Ships 60% Residential LTV limits: The Covered Bond Law prescribes a maximum of 80% LTV, which is the limit under the CRD, however issuers may prescribe stricter limits in their programme documents. All Regulated Covered Bonds have prescribed a 75% LTV limit, with the exception of the Bank of Scotland, which has a limit of 60%. Commercial and Ship Mortgages: These are eligible assets under the Covered Bond Law and are subject to the LTV limits set out in the Capital Requirements Directive and listed above. Commercial and Ship mortgages are not eligible under any existing Regulated Covered Bond Programme. |
(156)
Comments: When granting a mortgage loan, the loan may be included in the cover pool to the extent that the loan, relative to the collateral, lies within: 1. 75 percent of the market value, regarding real property, site leasehold rights and tenant-owner rights intended for residential purposes, 2. 70 percent of the market value, regarding real property intended for agricultural purposes, and 3. 60 percent of the market value, regarding real property, site leasehold rights and tenant-owner rights intended for commercial or office purposes. |
(157) Comments: The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds. | ||||||||||||
| 3. Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap? |
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| (158) Comments: Bondholders benefit only of registered share (max 70%) of the loan. | (159) Comments: In the event of liquidating a mortgage bank the part of the ordinary cover in excess of the limit of 60/70% LTV and the portion of liquid assets held but not recognized as cover by the mortgage bank at the starting date of liquidation, which comply with the requirements set for supplementary cover, shall be used exclusively for the settlement of the liabilities towards mortgage bond holders - after paying of the fee of the administrator of cover and the costs incurred by the registration and satisfaction of particular claims. (Mortgage Bond Act, Section 20 - 5b) | (160) Comments: Regularly cover asstes do not exceed the eligible LTV. Majority opinion as of today is, that loans exceeding this LTV at all cannot be part of the cover. | (161) Comments: The bondholders get this benefit in line with other creditors. | (162) Comments: Included in cover pool matching criteria. | |||||||||||||||||||||
| 4a. Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)? |
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| (163) Comments: There is no LTV cap on loans that can be included in the pool, however the LTV cap applies when calculating the Asset Coverage Test | (164) Comments: See Comment on IV.2. However, the LTV caps for eligible loans affect the entire loan, i.e. no part of a loan above the LTV cap is eligible. |
(165)
Comments: (Residential, 125%). Under all covered bond programmes a Dutch residential mortgage loan is only eligible for the asset pool if its principal amount did not exceed 125% (subject to some exceptions) of the foreclosure value of the mortgaged property at origination. |
(166) Comments: LTV of the original loan can be up to 100% (90% recommendation by the FSA) but only 70% LTV of that loan is Cover Pool eligible. | (167) Comments: all loans over 100% LTV are not eligible | (168) Comments: In relation to residential and commercial mortgages only the amount exceeding the LTV cap is non-eligible, whereas in relation to shipping loans exceeding the LTV cap (60%), the entire loan appears to be ineligible. Thus by way of example a loan of 900.000 Euros secured through a residential mortgage over a property valued at 1.000.000 Euros may be included in the cover pool but will be deemed for the purposes of the calculation of the statutory tests to be equal to 800.000 Euros. | (169) Comments: 80% for residential mortgages and 60% for commercial mortgages. | (170) Comments: See comment to IV.3. |
(171)
Comments: Residential - 75%; Commercial - 60% If the LTV of a loan subsequent to inclusion exceeds the limit (the value of the property has decreased after inclusion), the loan stays in the pool, but only that part that is within LTV 75% is taken into account when calculating the size of the cover pool |
(172) Comments: 80% for residential loans and 60% for commercial loans. | (173) Comments: See IV.2. | (174) Comments: 100% LTV cap for both residential and commercial loans. This cap referes not only to cover pool ineligibility, it is a general cap (total LTV cap) - Art. 13 para 2. of the Polish Covered Bond and Mortgage Banks Act. | (175) Comments: LTV doesn´t apply to Public Sector Bonds. | (176) Comments: Residential - 80% | (177) Comments: The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds. | |||||||||||
| 4b. Is there an LTV cap which would require a loan to be removed from the cover pool? |
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| (178) Comments: See Comment on IV.2 and IV.4a | (179) Comments: Any surplus over the LTV cap referred to under question IV.2 above, qualifies as extra credit enhancement. | (180) Comments: 70% Residential/ 60% Commercial provided that there's no additional collateral available. | (181) Comments: While the relevant provisions are not explicit on this point, it would appear that shipping loans that cease to be eligible, would no longer be taken into account in the calculation of the cover pool. However, to the extent that non-eligible assets are not removed from the cover pool, investors will have the benefit of such assets. | (182) Comments: An LTV of 80% for residential mortgages and 60% for commercial mortgages is the eligibility limit to enter and /or to stay in the pool, if limits are breached, loans will be removed and substituted for an eligible ones. | (183) Comments: See comment IV.3. | (184) Comments: It is not required to remove the loan from the cover pool once included but it does not count when testing the coverage. |
(185)
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. |
(186) Comments: LTV doesn´t apply to Public Sector Bonds. | (187) Comments: The existing covered bond programmes are tailor-made and do not yet meet the standards under the FDIC’s final Covered Bond Policy Statement and the US Treasury’s Best Practices for Residential Covered Bonds. | ||||||||||||||||
| 5. Is there any additional LTV limit on a portfolio basis? |
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| (188) Comments: See Comment on IV.2. | (189) Comments: No Portfolio specific LTV limits. | (190) Comments: General rule - applicable to all Hungarian credit institutions | (191) Comments: Mortgage and municipal loans going beyond the 70 % limit may only be granted on condition that the total amount of claims amount of a mortgage bank overrunning the limit does not exceed 10 percent of the total amount of outstanding mortgage and municipal loans. | ||||||||||||||||||||||
| (192) Global comments for this chapter:The valuation of properties must be performed by an independent valuer at or below the market value and must be repeated every year in relation to commercial properties and every three years in relation to residential properties. | |||||||||||||||||||||||||
| V. ASSET-LIABILITY GUIDELINES | |||||||||||||||||||||||||
| . Exposure to market risk | |||||||||||||||||||||||||
| 1. Is exposure to market risk (e.g. interest rate, currency risks) required to be mitigated by law or contract? |
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| (193) Comments: Yes, by law | (194) Comments: No specific action is required but the General Banking rules should apply. | (195) Comments: By contract | (196) Comments: The majority of mortgage loans in Spain are floating and Issuers issue mainly fixed rate bonds. As a result of that Spanish issuers hedge theses issues. This is a common practice. |
(197)
Comments: by law perfect matching between assets and liabilities |
(198) Comments: all risk is fully hedged by swaps compliant with criteria of rating agencies for such swaps | (199) Comments: The Secondary Legislation provides for tests that must be met for the full duration of the covered bonds. Such tests include inter alia a requirement that the net present value of the liabilities secured by the cover pool must at all times not exceed the net present value of the cover pool assets taking into account a parallel move of the yield curve by up to 200 basis points. Therefore in practice there is a legal requirement to provide for measures to mitigate such interest rate risk. In addition in practice both interest rate and (if such risk exists in the structure) currency risk is required by contract to be mitigated usually through appropriate derivative instruments. | (200) Comments: Whenever a mortgage bond and its cover assets are not denominated in the same currency, the mortgage bank shall conclude derivative transactions to hedge against currency exchange risk. Section 14 - (5) | (201) Comments: Mitigation of exposure to market risk is not directly required in the Decree-Law or contrat. However secondary legislation states that currency risk hedging is mandatory and aims at mitigating market risk. Each issuer must put in writting the specific policies for risk management, namely exchange risk, liquidity risk and interest rate risk and any other procedures aimed at ensuring compliance with the applicable regulatory regime. When the assets in the cover pool and the Mortgage Bonds are denominated in different currencies it´s mandatory for the issuer to ensure hedging for the currency exchange risk, being the reference exchange rates published by the European Central Bank used for this purpose. | (202) Comments: According to the Norwegian legislation, a mortgage credit institution shall not assume greater foreign exchange risk than what is prudent at any and all times. A mortgage credit institution is obliged to establish limits on foreign exchange risk. |
(203)
Comments: SCFs are required to comply with numbers of specific management rules intended to ensure matching of assets and liabilities in terms of interest rates and maturities. Exposure to market risk is required to be mitigated by Regulation 97-02 of 21 February 1997 relating to internal control in credit institutions and investment companies. |
(204)
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. 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. |
(205) Comments: Mitigation of exposure to market risk is not directly required in the Decree-Law or contrat, however secondary legislation states that currency risk hedging is mandatory and aims at mitigating market risk. Each issuer must put in writting the specific policies for risk management, namely exchange risk, liquidity risk and interest rate risk and any other procedures aimed at ensuring compliance with the applicable regulatory regime. | (206) Comments: Upto 15% of derivatives entered into to hedge interest rate and currency risks arising from mismatches between outstanding İTMK and their collateral can be recorded in the cover register. | (207) Comments: A mismatch between the coupon on the mortgage bonds and the yield on its collateral is unhedged. A SPV enters into swap agreements with qualifying swap providers in order to address risks arising from interest and currency mismatches between the mortgage bond series and the related covered bond series, and risks related to timing discrepancies between the dates on which proceeds from the mortgage bond series are received by a SPV and the date on which interest and principal is payable on the covered bond series. | |||||||||||
| 2. What is the primary method for the mitigation of market risk? |
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| (208) Comments: Interest rate and exchange rate swaps | (209) Comments: When the issuance is at a variable rate, then the method used will be “natural matching” |
(210)
Comments: by law perfect matching between assets and liabilities |
(211)
Comments: The use of derivatives hedging instruments is permitted, but to the extent the counterparties are credit institutions or investment services undertakings, the relevant exposures must not exceed 15% of the nominal value of the covered bonds. Consquently, both methods are used in practice. For instance currency risk has been avoided in the first covered bond issuance by denominating the covered bonds in Euros and including in the cover pool only loans denominated in Euros. However, in relation to interest rate risk it is difficult in practice to rely on natural matching (due to the variety of interest rates used by most Greek banks in relation in particular to residential mortgages) and therefore the use of interest rate swaps is unavoidable. |
(212) Comments: Pfandbrief issuers are allowed to use derivatives as additional mitigation of interest or currency risk. | (213) Comments: Natural matching is the primary method but also derivatives are used. | ||||||||||||||||||||
| 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: |
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| (214) Comments: Both the interest rate and exchange rate swaps are signed at closing. Cash flows are exchanged under the interest rate swap immediately. Cash flows under the exchange rate swap are only exchanged following an Issuer Event of Default | (215) Comments: A cover pool swap (total return swap) is entered into at inception of the covered bond programme. Covered bond series swaps (interest rate swaps and/or structured swaps) are entered into at the time of issue of the relevant series of covered bonds. | (216) Comments: Typically hedging derivatives are entered into by the time of issuance, because otherwise there can be no assurance (to the extent there is no perfect natural matching) that the test of the Secondary Legislation, as described under V.1 above and any additional tests agreed by the parties will be satisfied. It is a commercial matter whether the derivative instruments are entered into from the beginning or upon rating downgrade. | (217) Comments: Derivative transactions can be entered into the cover pool upon the consent of the derivative counterparty. Hence possible by law, no current practice. | (218) 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? |
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(219)
Comments: Test for coverage of CRH's loans to banks |
(220)
Comments: The Secondary Legislation provides for the following statutory tests: (a) The nominal value of the Covered Bonds including accrued interest may not exceed at any point in time 95% of the nominal value of the cover assets including accrued interest. (b) The net present value of obligations to holders of Covered Bonds and other creditors secured by the cover pool may not exceed the net present value of the cover assets including the derivatives used for hedging. This test must be met even under the hypothesis of a parallel movement of the yield curve by 200 basis points. (c) The amount of interest payable to holders of Covered Bonds for the next 12 months must not exceed the amount of interest expected to be received from the cover assets over the same period. For the assessment of the fulfillment of this test derivatives entered into for hedging purposes are taken into account. Tests (b) and (c) are performed on a quarterly basis. In case any of the tests is not met (either when performed on a quarterly basis, or if the credit institution becomes aware at any other time that the tests are not met), the credit institution is obliged to immediately take the necessary measures to remedy the situation. The results of the tests (a) to (c) above and the procedures used to monitor the compliance with such tests are audited on a yearly basis by an auditor independent of the statutory auditors of the credit institution. |
(221) Comments: Stress tests are used. |
(222)
Comments: The law requires: (1) Value cover, i.e. prudent market value (assets and derivative contracts) and net present value (issued bonds) cover (2) Payment flows cover. |
(223) Comments: Please refer to question V.1 | (224) Comments: Asset Coverage Test, Proceeds Compliance Test. | ||||||||||||||||||||
| 5. What is the frequency of coverage calculations? |
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| (225) Comments: Coverage calculations are carried out weekly by public sector DCIs, and monthly for mortgage DCIs. Coverage calculations are also made when assets are entered or removed from the cover pool and when bonds are issued. | (226) Comments: The Issuing Bank shall update the cover data for the pledge that is entered in the Central Register of the Special Pledges at least once every six months since the initial entry (if necessary). | (227) Comments: Please see comment provided under answer V.4 | (228) Comments: Mortgage Banks are required by the Mortgage Bank Act to possess cover surpassing the principal of outstanding mortgage bonds and the interest any time. Daily reporting is not obligatory. | (229) Comments: The Covered bond law doesn't contain a specific rule for this. Only a pure "coverage priciple" is enacted. | (230) Comments: Every six months. | (231) Comments: The SCF must ensure that it comply, at any time, with the regulation relating to the coverage ratio and ALM congruency. | (232) Comments: The NPV cover and the liquidity buffer has to be calculated on a daily basis. | ||||||||||||||||||
| 6. What types of stress scenarios are applied? |
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| (233) Comments: Plus or minus 1% shift in the yield curve, and plus or minus 1% shift in the slope of the yield curve (twisted curve) | (234) Comments: Under all covered bond programmes the asset cover test addresses the set-off risk. | (235) Comments: See above under V1 on the calculation of the present value test under the hypothesis of a parallel movement of the yield curve up to 200 basis points and also please see comment provided under answer V.4 for the tests applicable. | (236) Comments: Static stress tests are required by the cover pool monitor. | (237) Comments: Stress tests are required to test the value cover and the liquidity reserve. | (238) 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. | (239) Comments: These types of stress scenarios are applied on all banking activities, not separately for coverage calculation. | (240) Comments: Parallel shifting of interest rates and exchange rates where applicable. | (241) Comments: The program does not require the application of stress scenarios. However, such scenarios are taken into account by the rating agencies when calculating the required asset percentage which feeds indirectly into the coverage tests we perform. | |||||||||||||||||
| 7. What is the frequency of stress test calculations? |
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| (242) Comments: not defined in the law | (243) Comments: The legal regulation requires stress test calculations on a quarterly basis. | (244) Comments: No specific rule on this. | (245) Comments: Periodically | (246) 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. | (247) Comments: It depends on the risk types. Stress test coverage calculations are not applied separately. | ||||||||||||||||||||
| . Exposure to liquidity risk | |||||||||||||||||||||||||
| 8. Is exposure to liquidity risk required to be mitigated by law or contract? |
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| (248) Comments: Yes, by law | (249) Comments: By contract | (250) Comments: The mitigation to the exposure to liquidity risk comes from the high level of over-collateralization that is required (by law) and also by the substitution assets serving as collateral of the issue. |
(251)
Comments: by law |
(252) Comments: Liquidity risk in relation to interest payments is required to be mitigated for the next 12 months on a rolling basis in accordance with one of the tests provided in the Secondary Legislation (see above V4). Additional mitigation of the liquidity risk may be provided by contract. |
(253)
Comments: By law. Under Article R.515-7-1 of the Code, SCF must, at any time, manage their liquidity risk over a period of 180 days. In addition to specific rules, SCF are required to comply with Regulation 97-02 of 21 February 1997 relating to internal control in credit institutions and investment companies. Exposure to liquidity risk is required to be mitigated by Article 31 of Regulation 97-02. |
(254) 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? |
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| (255) Comments: For public sector ACS the duration of the assets cannot exceed the duration of the securities by more than 3 years on a weighted average basis. Mortgage ACS issuers have access to the Mortgage Backed Promissory Note programme, under which they can use mortgage assets not allocated to the ACS programme to access liquidity through the ECB. Furthermore, mortgage ACS tend to have 12 month extendable maturity. |
(256)
Comments: The issuer is required to stress test the cover pool in determining the Asset Percentage which ensures the cover pool is adequate, at all times, to cover all claims attaching to the outstanding covered bonds. The rating agencies ensure the Asset Percentage determined is adequate to maintain the current rating of the covered bonds In addition, a reserve fund is required to be funded by the Guarantor following a downgrade of the Issuer below A-1+(S&P), P-1(Moody’s), F1(Fitch) or R-1(middle)/A(high) (DBRS) |
(257) Comments: See question V.8 |
(258)
Comments: by law perfect natural matching,furthermore liquidity facilities in some conditions from French banks if CRH needs |
(259) Comments: All covered bond programmes require the issuer to establish a reserve fund equal to 1 month’s or 3 months’ (this differs per programme) interest payments on the covered bonds plus certain costs and expenses for 1 month if the issuer's short term rating is or falls below P-1/F1/A-1 or A-1+ (this differs per programme). | (260) Comments: interest rate risk fully mitigated via hedging contracts and collateralised loan mechanism, Various additional contractual arrangements in place like the pre-maturity test | (261) Comments: The interest payable to covered bond investors over the next 12 months must not exceed the interest receivables from the cover pool assets taking into account derivative hedging instruments. | (262) Comments: The law establishes the possibility of credit facilities to be activated as needed, with funds applied solely for redemption and interest payments associated with covered bonds. | (263) Comments: An excess cover up to 20% is possible. | (264) Comments: Liquid assets and liquidity facilities. |
(265)
Comments: Replacement assets are a key instrument to achieve the "natural" matching. In addition the SCF have a direct access to the French Central Bank as credit institutions, even after the bankruptcy of the mother company. The law allow them to enter into repo transactions. |
(266) Comments: The law establishes the possibility of credit facilities to be activated as needed, being this funds solely applied for redemption and interest payments associated with covered bonds. |
(267)
Comments: Under the Covered Bond Law, the issuer is required to stress test the cover pool to demonstrate that the cover pool is capable, at all times, of covering all claims attaching to the covered bonds. Stress tests are conducted using a model agreed with the regulator. In addition, all Regulated Covered Bond programmes require the issuer to establish a reserve fund, equal to one month’s interest payments on the covered bonds plus one month’s cover pool administration expenses plus £600,000, if the issuer’s ratings fall below A-1+ / P-1 / F1+ |
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| 10. What is the primary method for the mitigation of liquidity risk on principal payments? |
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(268)
Comments: The issuer is required to stress test the cover pool in determining the Asset Percentage which ensures the cover pool is adequate, at all times, to cover all claims attaching to the outstanding covered bonds. The rating agencies ensure the Asset Percentage determined is adequate to maintain the current rating of the covered bonds In addition, the outstanding Canadian covered bonds have soft bullet maturities, which allow for a twelve month extension. Hard bullet covered bonds can currently be issued under one program, which incorporates a pre-maturity test. This requires the issuer to cash-collateralise hard bullet maturities six months before maturity if a ratings trigger is breached |
(269) Comments: See question V.8 |
(270)
Comments: by law perfect natural matching,furthermore liquidity facilities in some conditions from French banks if CRH needs and period of 5 business days between date of repaiement of borrowing banks and maturity date of CRH's bonds in order to be able to call liquidity facilities |
(271) Comments: All covered bond programmes use either (a) a pre-maturity test 12 months or less before maturity if the issuer's short term rating is or falls below P-1/F1+/A-1+ or (b) a 12- or 18-months maturity extension. A breach of the pre-maturity test requires (i) the issuer to cash-collateralise hard bullet maturities or (ii) alternative remedies such as a guarantee of the issuer's obligations, a liquidity facility and/or a sale or refinancing of assets. In addition, most covered bond programmes provide for a ‘supplemental liquidity reserve’, being (1) additional residential mortgage loans that may be sold at the best price reasonably available if the issuer's short term rating is or falls below P-1/F1+/A-1+ or (2) the proceeds of such sale, as the case may be. | (272) Comments: The covered bond legislation does not include requirements for the mitigation of the liquidity risk on principal payments. | (273) Comments: The law establishes the possibility of credit facilities to be activated as needed, as mentioned above, and Covered Bond Programmes may include contractual arrangements, as for example maturity extensions, normally up to one year, in order for that the issuer may manage liquidity risk on principal and interest payments. | (274) Comments: An excess cover up to 20% is possible. | (275) Comments: Liquid assets and liquidity facilities. | (276) Comments: The law establishes the possibility of credit facilities to be activated as needed, as mentioned above, and Covered Bond Programmes may include contractual arrangements, as for example maturity extensions, normally up to one year, in order for that the issuer may manage liquidity risk on principal and interest payments. |
(277)
Comments: Under the Covered Bond Law, the issuer is required to stress test the cover pool to demonstrate that the cover pool is capable, at all times, of covering all claims attaching to the covered bonds. Stress tests are conducted using a model agreed with the regulator. In addition, all Regulated Covered Bond programmes use either a pre-maturity test (requiring the issuer to cash-collateralise hard bullet maturities six months before maturity if the issuer is rated below A-1+ / P-1 / F1+) or a one-year maturity extension. |
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| 11. Is there any grace period in case of a breach of liquidity risk mitigants? |
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(278)
Comments: If the Asset Coverage Test is not met on a calculation date, an ACT Breach Notice is served to the Issuer. If the Issuer fails to cure the ACT breach by transferring additional cover assets or cash to the Guarantor by the following calculation date, an Issuer Event of Default occurs. in addition, default by the Issuer on any other obligation under the covered bonds for more than 30 days constitutes an Issuer Event of Default |
(279)
Comments: breach of perfect matching is coming from a default of a borrowing bank. In that case, CRH may become owner of cover pool |
(280) Comments: In all covered bond programmes contractual arrangements are subject to grace periods generally lasting from 7 to 30 days. For example, a breach of the pre-maturity test must be remedied within 10 business days. | (281) Comments: If not otherwise advised by FSA |
(282)
Comments: The statutory liquidity test referred to above under V.4 and V.8 provides for no grace period, as the credit institution must take immediately action to restore the test. Contractual mitigants may be subject to a grace period. In case test it is found during the quarterly that the requirement described under V.9 is not satisfied the credit institution must immediately rectify the situation. |
(283) Comments: There are no regulatory obligations for liquidity risk mitigation. | (284) Comments: It is the supervisor who decides how to respond in case of any breach. | (285) Comments: All breaches must be notified to the regulator immediately and in writing, together with a proposal Detailing how the breach will be rectified. The grace period will be at the discretion of the regulator. Contractual arrangements are subject to grace periods generally lasting from 10 to 30 days. A breach of the pre-maturity test must be rectified within 10 business days, for example. | ||||||||||||||||||
| 12. What is the consequence of not fixing a breach of liquidity risk mitigants? |
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| (286) Comments: A number of actions are possible from the Financial Regulator, including programme freeze or removal of licence. | (287) Comments: The above items are all possible consequences of a breach | (288) Comments: Not applicable |
(289)
Comments: see answer Q V.11 |
(290) Comments: All of the above are possible consequences of a breach, in addition to redirection of cash flows. | (291) Comments: Cancelling the licence (FSA) | (292) Comments: temporary breach means no further issue and could eventually result in event of default if not solved in following periods |
(293)
Comments: The breach of the covered bond legislation will lead to regulatory sanctions. The parties can also agree that the breach of the statutory tests constitutes an event of default. Moreover, since the Bank of Greece approves each issuance of covered bonds, it would not approve any issuance in case the statutory tests (including the liquidity test) are not met. Therefore a breach of the statutory (but not of any contractual) liquidity test would in practice lead to a Programme freeze. Also the failure to comply with the requirement to restore the statutory tests may lead to sanctions by the Bank of Greece. Apart from the sanctions provided by the Primary and the Secondary Legislation, the contracting parties may agree to additional sanctions, in particular to alternative administration or an event of default. |
(294) Comments: There are no regulatory obligations for liquidity risk mitigation. |
(295)
Comments: If the limits are breached, the issuer shall settle immediately this situation by assigning new mortgage credits, purchasing outstanding bonds in the secondary market and /or assign other eligible assets. These will, in turn, be exclusively assigned to the debt service of the covered bond. The Bank of Portugal may also make use of its regulatory role to require additional steps by the issuers to meet with all the asset-liability criteria that it sets out. |
(296) Comments: The asset monitor will report to the Bank of Italy and action will be taken. | (297) 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. |
(298)
Comments: If the limits are breached, the issuer shall settle immediately this situation by assigning new public loans, purchasing outstanding bonds in the secondary market and /or assign other eligible assets. These will, in turn, be exclusively assigned to the debt service of the bond. The Bank of Portugal may also make use of its regulatory role to require additional steps by the issuers to meet with all the asset-liability criteria that it sets out. |
(299) Comments: All of the above are possible consequences. In this case, “alternative administration” means that the administration of the cover pool may be taken over by a substitute servicer or trustee. | ||||||||||||
| . Monitoring of exposures to market and liquidity risk | |||||||||||||||||||||||||
| 13. Who monitors the maintenance of coverage tests? |
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(300)
Comments: The Issuer. The bondholders or their representative can access some information (Cover Asset register) on request. For listed Mortgage-backed Bonds under the provisions of Public Offering of Securities Act a Trustee could be appointed and it could undertake monitoring actions. For listed Mortgage-backed Bonds the Bulgarian Supervising Authority - Financial Supervision Commission - could also undertake such measures. |
(301)
Comments: An independent audit firm (the Asset Monitor) will test the calculation of the ACT performed by the Issuer (as Cash Manager) on an annual basis. However, if the rating of the Cash Manager has been downgraded below the trigger level stipulated by the rating agencies or if an ACT Breach Notice has been served on the Issuer and not yet revoked, the Asset Monitor will test the calculation on a monthly basis, until the situation is resolved. In addition, if the test reveals an error in the ACT calculation, the Asset Monitor will test the calculation monthly for a period of six months. The rating agencies confirm that the asset percentage applied in calculating the ACT is adequate to maintain the rating of the covered bonds |
(302)
Comments: furthermore, not borrowing for itself and independant from borrowers, CRH monitors coverage of its loans to banks |
(303) Comments: The compliance with statutory tests is audited by independent auditors. Such audit reports, as well as the quarterly compliance reports by the credit institution must be submitted to the Bank of Greece as regulator. | (304) Comments: Annual Report sent to Supervisory Authorities ( Bank of Portugal and CMVM – Capital Market Regulator). | (305) Comments: Cover pool monitor | (306) Comments: Other is the Specific controller created by Article L.515-30 of the Code.The specific controller according to Regulation 99-10, controls the adequate matching of maturities and interest rates and alerts the French Commission Bancaire should he considers the levels are insufficient. | (307) Comments: Annual Report sent to Supervisory Authorities ( Bank of Portugal and CMVM – Capital Markets Regulator). | (308) Comments: Trustee monitors register of MLs via natural matching, he/she supervises data on ordinary and substitute coverage, i. e. |
(309)
Comments: Independent asset monitor. The independent asset monitor has to test the arithmetic accuracy of the ACT calculations annually and, under certain circumstances, monthly. |
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| 14. Are there any regular public reporting requirements for market and liquidity risk? |
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| (310) Comments: The DCI’s market risk and liquidity risk exposures are reported in the annual financial accounts. | (311) Comments: Under general Bank supervision. | (312) Comments: The investor and rating agency reports typically outline the calculation of the ACT and the level of coverage available |
(313)
Comments: not relevant in a normal situation by law perfect matching between assets and liabilities |
(314) Comments: Reports only to FSA | (315) Comments: Please see above comment provided under question III.4 | (316) Comments: The issuer has to send a liquidity map quarterly as well as the exposure to interest rate risk of the aggregated assets and liabilities, in terms of net present value. | (317) 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. | (318) Comments: The issuer has to send a liquidity map quarterly as well as the exposure to interest rate risk of the aggregated assets and liabilities, in terms of net present value. | |||||||||||||||||
| . Overcollateralisation | |||||||||||||||||||||||||
| 15. Is mandatory minimum overcollateralisation required? |
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| (319) Comments: The Law on Mortgage-backed bonds required only that mortgage-backed bonds cover assets from any issue (the sum total of the principal cover assets and the substitution assets) may not be less than the total amount of liabilities towards the principals of mortgage-backed bonds from that issue which are outstanding and in circulation outside the issuing bank. | (320) Comments: See above comment provided under question V.4. | (321) Comments: An excess cover of up to 20% may be stipulated in the issuance program. | (322) Comments: No |
(323)
Comments: Legislation establishes that assets must "at least" equal liabilities both on the nominal and NPV basis. |
(324) Comments: It is not required by legislation/regulation, contractual obligation, or by published voluntary commitments. In practise we try to keep coverage of the pools on reguired level (100 %), over it 1 - 2%. | (325) Comments: Yes, contractually committed overcollateralisation. | |||||||||||||||||||
| 16. What is the level of minimum mandatory overcollateralisation? |
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(326)
Comments: 103%, but 110% for Commercial Mortgage ACS. The regulatory minimum OC is calculated on a PV basis. In addition, ACS issuers have committed contractually to 105% OC on a nominal basis. |
(327) Comments: 10 to 20 % overcollateralisation is usually applied. It is not specified in the law but based on Issuer's commitment in the securities' Memorandum. | (328) Comments: All four existing programs have stipulated a maximum Asset Percentage of 97%, which ensures a minimum overcollateralisation of at least 3% |
(329)
Comments: This level would take place if the following two conditions are fulfilled: •The entire mortgage portfolio of the issuer is eligible (see LTV limits in item IV.2). •The Issuance level amounts to 80% of mortgage portfolio |
(330)
Comments: 25% |
(331) Comments: For all covered bond programmes this is determined using an asset cover test with asset percentages ranging from approximately 70 to 80%. | (332) Comments: 2% of the Net Present Value by the law and issuer/programme specific levels. | (333) Comments: means just over 8% minimum overcollateralisation | (334) Comments: The nominal value of the covered bonds plus accrued interest cannot exceed 95% of the value of the cover pool assets. | (335) Comments: No mandatory overcollateralization rules apply. | (336) Comments: Article L.515-20 of the Code requires that, at any time, the total amount of the SCF’s assets must be greater than the outstanding amount of its privileged debt. The 102% minimm level of overcollateralization is provided in Article R.515-7-2 of the Code. | (337) Comments: of the total volume of the bonds in circulation (Public and Mortgage Pfandbriefe) | (338) Comments: The 2% have to be covered under stress assumptions. | (339) Comments: The actual amount varies from programme to programme | (340) Comments: not published voluntary commitments | (341) Comments: The level is not explicitly stated in the law. | (342) Comments: In accordance with the respective programme terms, the asset percentage is at least 96% for BA Covered Bond Issuer and 93% for WM Covered Bond Program and refers to a minimum OC of 4.2% and 7.5%, respectively. | |||||||||
| 17. If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected? |
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| (343) Comments: All cover assets are subject to a pledge by operation of law in favour of the covered bondholders and therefore assets in excess of the mandatory overcollateralisation are still subject to such pledge. | (344) Comments: The OC is possible only up to 20%. Beyond 20% it is not protected. | (345) Comments: The law requires that the value of the cover pool shall exceed the value of the covered bonds. No specific OC level are required. |
(346)
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)." |
(347) Comments: Although minimum mandatory overcollateralisation is not required, the amounts are protected. | |||||||||||||||||||||
| 18. Is there any grace period in case of a breach of the coverage test? |
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| (348) Comments: If the Asset Coverage Test is not met on a calculation date, an ACT Breach Notice is served to the Issuer. If the Issuer fails to cure the ACT breach by transferring additional cover assets or cash to the Guarantor by the following calculation date, an Issuer Event of Default occurs. | (349) Comments: see comments next question | (350) Comments: If not otherwise advised by FSA. |
(351)
Comments: Programme freeze (neither sale of assets nor new issuance allowed) Other regulatory or rule-based actions. General Comment: Since the Bank of Greece approves each issuance of covered bonds, it would not approve any issuance in case the statutory tests (including the coverage test) are not met. Therefore a breach of the statutory (but not of any contractual) coverage test would in practice lead to a Programme freeze. Also the failure to comply with the requirement to restore the statutory tests may lead to sanctions by the Bank of Greece. Apart from the sanctions provided by the Primary and the Secondary Legislation, the contracting parties may agree to additional sanctions, in particular to alternative administration, redirection of cashflows or an event of default. |
(352) Comments: Both the mortgage bank and the cover pool monitor shall immediately notify the Hungrian Financial Supervisory Authority (HFSA) if the cover assets for outstanding mortgage bonds do not meet the requirements set forth in the Mortgage Bank Act. The HFSA has to take any necessary measurement or extraordinary measurement in the case when the mortgage bank fails to comply with regulations on ensuring liquidity and approximation of maturities of assets and liabilities - in order to avoid any possible insolvency situation. | (353) Comments: It is the supervisor who decides how to respond in case of any breach. One reaction may be to instruct the institution to stop new issues. | (354) Comments: If the ACT is failed, a sponsor bank has to add further collateral to the cover pool to ensure that the ACT is passed again at the next determination date. | |||||||||||||||||||
| 19. What is the consequence of not fixing a breach of the coverage test? |
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| (355) Comments: A number of actions are possible from the Financial Regulator, including programme freeze or removal of licence. | (356) Comments: Under initiative of the bondholders representative and/or General Meeting of the bondholders only. | (357) Comments: The above items are all possible consequences of a breach |
(358)
Comments: the borrowing bank is obliged to add eligible collateral or to pay back CRH by delevering to CRH CRH's bonds related to its borrowing |
(359) Comments: All of the consequences ticked above are possible consequences of a breach. | (360) Comments: Cancelling the licence (FSA) | (361) Comments: The breach of the covered bond legislation will lead to regulatory sanctions. The parties can also agree that the breach of the statutory tests constitutes an event of default. | (362) Comments: In the case of breach of liquidity or asset-liability management provisions, a Supervisory Commissioner can be delegated to the mortgage bank or any credit institution upon the decision of Hungarian Financial Supervisory Authority (HFSA). The delegation of a Supervisory Commissioner to the mortgage bank is an extraordinary measurement to be effectuated by the HFSA prior to the commencement of any insolvency procedure. In this case both the rights of the owners and the rights of the management of the mortgage bank will be suspended in order to warrant the satisfaction of the claims of the mortgage bank’s creditors, e. g. bondholders. In this case the aim of the extraordinary measurement is to avoid a threatening insolvency situation – which has not yet occurred at the point of time when delegating the Supervisory Commissioner to the bank. | (363) Comments: Supervisor’s intervention: Supervisor may i.a. disallow or suspend new issuance of CBs. | (364) Comments: The asset monitor will report to the Bank of Italy and action will be taken. | (365) Comments: A breach of liquidity risk mitigants is not allowed as the liquidity buffer is stipulated by law. A violation of the legal requirements could lead to a loss of the Pfandbrief license. | (366) Comments: Bank of Portugal may intervene. | (367) Comments: All of the above are possible consequences of a breach | (368) Comments: A manages is appointed. | (369) Comments: Consecutive failure of the ACT triggers a Sponsor Bank Event of Default. A failure of the PCT constitutes an SPV Event of Default. | |||||||||||
| (370) Global comments for this chapter:In addition to all measures aiming at ensuring the liquidity of the SCF, SCF are incorporated as credit institutions and have a direct access to the French Central Bank refinancing, even after the bankruptcy of the mother company. The law allows them to enter into repo transactions. | (371) Global comments for this chapter:Voluntary Over Collateralization is protected by law. | ||||||||||||||||||||||||
| VI. COVER POOL MONITOR & BANKING SUPERVISION | |||||||||||||||||||||||||
| 1. Is a special license required for the issuing of covered bonds? |
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| (372) Comments: Eligible issuers are banks only - on the basis of their mortgage loans portfolio. | (373) Comments: No specific license is required, however all the existing Issuers are regulated by OSFI and as such are required to comply with the maximum issuance limit stipulated by OSFI - currently 4% of total assets | (374) Comments: It is enough to be a credit institution. |
(375)
Comments: The ‘special license’ is the registration of the covered bond programme by the Dutch Central Bank. For that purpose the issuer will need to demonstrate to the Dutch Central Bank that the bonds qualify as ’covered bonds’ within the meaning of the Dutch covered bond regulation by submitting documents showing that the following requirements are met: a. the covered bonds (i) are issued by a bank having its registered office in the Netherlands and (ii) are covered by cover assets which will be used with priority towards payment of principal and interest on the covered bonds if the issuer defaults; b. the cover assets (i) have been safeguarded for the benefit of the covered bondholders by way of a transfer to an SPE and a pledge to a trustee, (ii) provide sufficient cover for the payment of principal and interest on the covered bonds and the cost of managing and administering the cover assets and (iii) are governed by the law of a Member State, the United States of America, Canada, Japan, the Republic of Korea, Hong Kong, Singapore, Australia, New Zealand or Switzerland; c. the issuer does not own or control the SPE or the trustee; d. the requirements set out in paragraphs a. and b. under question VI.2 below are met; e. the covered bonds must have a credit rating of at least AA- (Fitch or S&P) or Aa3 (Moody’s); f. there must be a healthy ratio between on the one hand the programme/issuance amount and on the other hand (i) the value of the cover assets; (ii) the value of the remaining assets of the issuer eligible and freely available for addition to the cover assets; and (iii) the consolidated balance sheet of the issuer (the latter to protect other stakeholders); and g. the issuer must have solid and effective strategies and procedures for verifying and procuring the sufficiency of the cover assets, taking into account the composition of the cover assets, the over-collateralisation and the applicable risks and stress tests. |
(376)
Comments: According to the Primary Legislation, covered bonds may be issued (or in case of an indirect issuance guaranteed) by credit institutions having Greece as home member state. However, in case of issuance of covered bonds by a credit institution having as home state another member state of the European Economic Area (EEA) and provided that they are characterized as covered bonds in accordance with the law of such member state, the provisions of the Primary Legislation on the creation of a statutory pledge will apply in relation to claims governed by Greek law, as well as the tax exemptions which apply to Greek bonds. Therefore foreign banks established within the EEA having a significant loan portfolio in Greece may use the loans of such portfolio as part of the cover pool. The Secondary Legislation sets additional prerequisites for the issuance of covered bonds. Specifically the credit institutions issuing covered bonds: (a) must have certain minimum risk management and internal control requirements including suitable policies and procedures for the issuance of covered bonds, organizational requirements, IT infrastructure and a policy for the reduction and management of risks deriving from the issuance of covered bonds, such as interest rate risk, counterparty risk, operational risk, FX risk and liquidity risk; and (b) must have aggregate regulatory capital of at least 500 million Euros and a capital adequacy ratio of at least 9%. |
(377) Comments: Only specialized credit institutions, i.e. mortgage banks are entitled to issue mortgage bonds, based on a special legal framework. |
(378)
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. |
(379) Comments: The issuer must satisfy the regulator that its programme complies with the regulations before being admitted to the register of Regulated Covered Bond issuers. | (380) Comments: | |||||||||||||||||
| 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? |
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| (381) Comments: For listed Mortgage Bond issues, the general financial information are published. |
(382)
Comments: Once a covered bond programme is registered by the Dutch Central Bank, the issuer will have ongoing administration and reporting obligations towards the Dutch Central Bank: a. it must keep a record of all covered bonds issued and of all assets serving as cover assets; b. it must demonstrate at least quarterly that the covered bonds continue to meet the registration criteria, by granting the Dutch Central Bank access to the records referred to in a. above and for instance audit reports, credit rating reports and reports regarding the cover assets. This is without prejudice to the general authority of the Dutch Central Bank to request information from the issuer on the basis of its regular banking supervision powers; c. it must demonstrate at least annually to the Dutch Central Bank that it complies with the requirement set out in section paragraph VI.1 under g. above; d. annually, within six months of the close of its financial year, it must submit to the Dutch Central Bank the annual financial statements and the annual report of the SPE; e. it must immediately notify the Dutch Central Bank if, for as long as any covered bond is outstanding (i) changes occur in respect of the data, transaction documents or other submitted documents, as a result of which the outstanding covered bonds are or will no longer be compliant with the requirements for registration; or (ii) significant changes are made in the covered bond programme or the conditions of the covered bonds; and f. before it issues any further covered bonds, (i) it must ascertain that the requirements for registration are complied with and (ii) if the ratio between the total nominal value of the covered bonds and the consolidated balance sheet total of the issuer increases beyond what the Dutch Central Bank had determined to be a healthy ratio, the issuer must demonstrate to the Dutch Central Bank that the new ratio can be considered healthy. |
(383) Comments: the issuer is specifically licensed by the French banking authorities and frequent reporting is provided. | (384) Comments: See above comment provided under question III.4 | (385) Comments: The issuer has to send a liquidity map quarterly as well as the exposure to interest rate risk of the aggregated assets and liabilities, in terms of net present value. | (386) Comments: The report goes from the superviser of the cover pool (appointed by the FSA) to the FSA at least once a year or if special occasion occurs | (387) Comments: Pfandbrief issuers have to send copies of the cover register to BaFin. | (388) Comments: The issuer has to send a liquidity map quarterly as well as the exposure to interest rate risk of the aggregated assets and liabilities, in terms of net present value. | (389) Comments: The issuer must provide the regulator with cover pool data on a quarterly basis. It must also notify the regulator prior to each issue, and immediately upon the occurrence of any breach in the asset capability requirement stress tests. | |||||||||||||||||
| 3. What is the role of the banking supervision regarding covered bonds? |
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| (390) Comments: Issuers are currently limited by OSFI to issuance up to 4% of total assets | (391) Comments: See question VI.1 above. | (392) Comments: As for all credit institution, the banking authorities supervise regularly the issuer on, at least, a quaterly basis, perform missions to audit the Issuer and may ask for specific requests at any time. | (393) Comments: Supervises the issuer and appoints the cover pool supervisor |
(394)
Comments: This is a “special” supervision (reference to UCITS Art. 22(4)), because the BaFin has to supervise Pfandbriefbanks much more intensive than banks in general. The former division on mortgage banks (Referat Hypothekenbanken) was transformed into the divison “Pfandbriefkompetenzcenter I - Grundsatzfragen”, which is responsible for all fundamental issues regarding the PfandBG, especially its interpretation and further development. In January 2006, the BaFin has set up a special division for cover pool checks (Pfandbriefkompetenzcenter II - 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. |
(395) Comments: To check (when applicable) minimum mandatory or voluntary overcollateralisation. | (396) Comments: Monitoring of exposure to market risk and liquidity risk, evaluation of operational risk are realised within whole universal banking activities framework. | |||||||||||||||||||
| 4. Is there a special role of banking supervision in crisis regarding covered bonds? |
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| (397) Comments: But see questions VI.1, VI.2 and VI.3 above. | (398) Comments: As for all credit institution, the banking authorities may implement all actions they may consider as necessary to safe the rights of the credit institution creditors. | (399) Comments: The Bank of Greece will only appoint a servicer of the cover pool if the trustee fails to do so in an insolvency of the issuer. | (400) Comments: In the case of breach of liquidity or asset-liability management provisions, a Supervisory Commissioner can be delegated to the mortgage bank or any credit institution upon the decision of Hungarian Financial Supervisory Authority (HFSA). The delegation of a Supervisory Commissioner to the mortgage bank is an extraordinary measurement to be effectuated by the HFSA prior to the commencement of any insolvency procedure. In this case both the rights of the owners and the rights of the management of the mortgage bank will be suspended in order to warrant the satisfaction of the claims of the mortgage bank’s creditors, e. g. bondholders. In this case the aim of the extraordinary measurement is to avoid a threatening insolvency situation – which has not yet occurred at the point of time when delegating the Supervisory Commissioner to the bank. In the event of the transformation or liquidation of a mortgage bank, the mortgage bank may, with the permission of the HFSA, transfer its liabilities existing under mortgage bonds or derivative transactions recognized as cover to another mortgage bank. | (401) Comments: The cover pool in insolvnecy of the issuing credit institution has to be administrated by the overall bankruptcy receiver. | (402) Comments: This is regulated in details in §§ 32 - 36 PfandBG. | ||||||||||||||||||||
| 5. Is there a cover pool monitor independent from the issuer? |
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(403)
Comments: The cover pool monitoring is engagement of the issuer under Mortgage-backed Bonds Law. Each bondholder and the bondholders representative may request access to the Cover Register though. Trustee could be appointed under Public Offering of Securities Act in the case of listed Mortgage-backed Bonds and it could undertake monitoring actions. Financial Supervision Commission (Bulgarian Supervision Authority) could also take such function if finds it necessary. |
(404) Comments: The Issuer’s audit firm typically acts as the Asset Monitor | (405) Comments: There is not a genuine monitor, but only external auditors. |
(406)
Comments: French banking authority in a special legal audit Furthermore, CRH independant from borrowing banks audits coverpool, verifies coverage tests and reports to Authorities |
(407) Comments: Issuer monitors the Cover Pool and reports it to FSA. FSA audits the cover pool. | (408) Comments: An independent auditor must provide an annual report on the compliance with the statutory tests and the eligibility of the cover pool assets. | (409) Comments: The cover pool monitor independent from the issuer is the Specific controller created by Article L.515-30 of the Code. | (410) 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. | (411) Comments: [The cover pool monitor is typically the issuer’s auditor] [is this the case for all UK issuers?] | |||||||||||||||||
| 6. If there is an independent cover pool monitor, what are its duties? |
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| (412) Comments: On a request of a bondholder; ora bondholders representative, appointed by the General Meeting of the Bondholders; or Trustee if appointed under Public Offering of Securities Act in the case of listed Mortgage-backed Bonds. |
(413)
Comments: Collateral audits are typically performed prior to filing the initial base shelf prospectus and may be performed on renewal of the programs erification of ACT performed annually unless a ratings trigger is breached or an error is made in the calculation, in which case calculations are checked monthly |
(414) Comments: In addition, it is market practice under all covered bond programmes that the issuer procures annual pool audits to be carried out by an independent auditor. | (415) Comments: n.a. | (416) Comments: The monitor has contractually the same role as the specific controler in an "société de crédit foncier" issuing legal covered bonds. |
(417)
Comments: The cover pool monitor shall monitor and certify that: a) the necessary collateral for mortgage bonds is available at all times as required; b) the mortgaged objects recognized as cover assets for mortgage bonds have been recorded along with the related property registration data and mortgage lending value in the register of ordinary and supplementary cover assets. The cover pool monitor shall immediately notify the HFSA in writing if the collateral coverage of outstanding mortgage bonds fails to meet the requirements set forth in the Mortgage Bank Act. Mortgage Bank Act Section 17 - (1 & 2) |
(418) Comments: The independent auditor has two different roles, one for the auditing of the assets and one of verifying of compliance to applicable legal and regulatory requisites regarding mortgages bonds and public sector bonds, and of reporting to the Bank of Portugal on an annual basis. |
(419)
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. |
(420) Comments: The independent auditor has two different roles, one for the auditing of the assets and one of verifying of compliance to applicable legal and regulatory requisites regarding mortgages bonds and public sector bonds, and of reporting to the Bank of Portugal on an annual basis. | (421) Comments: The cover pool monitor does not have any obligation to report directly to the regulator, however the issuer is required to provide the regulator with the cover pool monitor’s pool audits and other reports | (422) Comments: Mortgage Trustee duties are regulated in detail in the Decree of National Bank of Slovakia and Ministry of Finance of Slovak Republic No. 661/2004 Coll., Mortgage register, details on Mortgage Trustee position and his/her activities. | (423) Comments: An issuer must appoint a qualifying audit firm authorised and listed by CMB as cover monitor and the CMB should approve such appointment. Thecover monitor should report to the CMB of the results of the examinations. |
(424)
Comments: The independent asset monitor has to test the arithmetic accuracy of the ACT calculations annually and, under certain circumstances, monthly. Under an Asset Monitor Agreement, the asset monitor has to verify the arithmetic accuracy of the ACT calculation yearly. If the sponsor bank was downgraded to or below BBB- (S&P), Baa3 (Moody’s) or BBB- (Fitch) the asset monitor has to test the ACT calculation monthly until the required credit ratings have been reinstated. |
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| VII. SEGREGATION OF ASSETS & BANKRUPTCY REMOTENESS OF COVERED BONDS | |||||||||||||||||||||||||
| 1. Do covered bonds automatically accelerate when the credit institution goes insolvent? |
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| (425) Comments: The Guarantor will continue to service the cover pool and make the required payments due under the covered bonds. The Guarantor may sell the assets in the covered pool as required | (426) Comments: If the issuer becomes insolvent, the trustee may or, if instructed by the covered bondholders, shall accelerate the covered bonds against the issuer (but not the SPE) and will have a claim against the issuer on an accelerated basis. Any proceeds received from that claim will be added to the cover pool for the SPE to make the originally scheduled payments of interest and principal on the covered bonds. Acceleration against the issuer therefore does not automatically result in acceleration against the SPE. | (427) Comments: Investors may decide at a bondholder’s Assembly a majority of 2/3 to call the mortgage bonds, otherwise the original maturity remains unchanged. |
(428)
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). |
(429) Comments: Investors may decide at a bondholder’s Assembly a majority of 2/3 to call the mortgage bonds, otherwise the original maturity remains unchanged. | (430) Comments: If a covered bond issuer becomes insolvent, the covered bond trustee will have a claim against the issuer on an accelerated basis. Any proceeds received from this claim will be combined with the proceeds from the cover pool to make the originally scheduled payments of interest and principal on the bonds. | ||||||||||||||||||||
| 2. What is the cover pool? |
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| (431) Comments: All assets (public sector or mortgage), substitution assets, cover assets and hedge contracts on the cover register |
(432)
Comments: General and substitution cover assets on the cover register and pledged in favour of the mortgage-backed bond issue. If the assets in the cover pool are not sufficient for redeeming the bonholders receivables in case of bankruptcy of the issuer all assets of the issuer's balance sheet may serve for settling the unsettled claims of the bondholders pari passu with the unsecured creditors. |
(433) Comments: Apart from their primary claim on the issuer, the covered bondholders have a claim against the SPE owning the cover pool. The claim against the issuer is an ordinary, unsecured claim which is guaranteed by the SPE. The claim against the SPE is secured (indirectly through the trustee) by a right of pledge on the cover pool. | (434) Comments: However, Bondsholders benefit from a pledge governed by French Civil code over all the Issuer's assets which allow them to have a contractual privilege, instead of legal one, over them. | (435) Comments: Depending on the structure used for the issuance of covered bonds the assets are segregated either through the creation of a statutory pledge over assets owned by the issuer and specified in a register or through the transfer of assets to an SPE. |
(436)
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. |
(437) Comments: Under the Covered Bond Law, the assets in the cover pool are those which are (a) transferred to the SPE and (b) recorded on a list maintained by the issuer and provided to the regulator | (438) Comments: All assets and derivatives on the cover register. | (439) Comments: (All assets transferred for security purpose). | (440) Comments: To secure its obligations under the mortgage bonds, a sponsor bank grants a first priority perfected security interest in the cover pool to a MBIT for the benefit of the mortgage bond investors. The SPV grants a first priority perfected security interest in the covered bond collateral to a CBIT for the benefit of the covered bond investors. | ||||||||||||||||
| 3. How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer? |
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(441)
Comments: Provisions of Mortgage-backed Bonds Law stipulating that in case of declaring the issuing bank bankrupt, the assets recorded as of the date of declaring the bank bankrupt in the register of the mortgage-backedbonds cover shall not be included in the bankruptcy estate.Proceeds from the liquidation of assets recorded in the register as a cover on aparticular issue of mortgage-backed bonds shall be distributed among the bondholdersfrom that issue in proportion to the rights under their bond holdings.Any funds remaining after settling the claims under mortgage-backed bondsfrom a particular issue shall be included in the bankruptcy estate. The cover pool shall be managed by aholders’ trustee of mortgage-backed bonds who shall be appointed by the bankruptcy court when it has been establishedthat the bank has outstanding liabilities under mortgage-backed bonds and should comply with spcific provisions of the law and with certain proceedings requirements. |
(442) Comments: A legal true sale of the assets to the bankrupcy remote Guarantor. | (443) Comments: The assets owned by the SPE are pledged to the trustee acting for the benefit of, amongst others, the covered bondholders. |
(444)
Comments: Depending on the structure used for the issuance of covered bonds. The general principle is that the pledge by operation of law created in favour of the bondholders and other creditors (such as the trustee, hedging counterparties etc.) specified in the contractual documents constituting the covered bonds takes precedence over the claims of all other creditors, including preferred creditors. |
(445) Comments: They benefit from the privilege of article L.515-19 of the Code under which the have the right to be paid by preference to all others creditors including the State. |
(446)
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. |
(447)
Comments: UBS Hypotheken AG fulfills duties under Covered Bonds (Bankruptcy remoteness of guarantor including non-petition and limited recourse). |
(448) Comments: To secure its obligations under the mortgage bonds, a sponsor bank grants a first priority perfected security interest in the cover pool to a MBIT for the benefit of the mortgage bond investors. The SPV grants a first priority perfected security interest in the covered bond collateral to a CBIT for the benefit of the covered bond investors. | ||||||||||||||||||
| 4. Is there recourse to the credit institution’s insolvency estate upon a cover pool default? |
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| (449) Comments: Recourse for any shortfalls on outstanding covered bonds not covered by the Cover Pool | (450) Comments: An insolvency of the issuer does not result in an insolvency of the SPE owning the cover pool. A default by the SPE in no way diminishes the full recourse against the issuer. As described in question VII.1 above, an insolvency of the issuer may well precede a default by the SPE. | (451) Comments: The bondsholders are senior to all creditors of issuer. In case of bankruptcy of the originator, the Issuer exercice the financial guarantee over the pledged assets. If there is on outsdanding amount, the issuer has an unsecured right towards the originator/borrower, pari passu with others | (452) Comments: All the assets of the OFs issuing credit institution secure the OFs and other privileged debtors of the credit institution. | ||||||||||||||||||||||
| 5. Are there provisions that require derivatives to continue in case of insolvency of the credit institution? |
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| (453) Comments: The hedges survive pursuant to the terms of their contracts. | (454) Comments: Derivatives are not permitted in the cover pool. | (455) Comments: The SPE which holds the cover assets enters into all derivatives directly. The swap counterparty at closing is the Issuer. The Issuer is required to post collateral following downgrade below stipulated ratings levels. Upon further downgrade, the Issuer is required to be replaced as swap counterparty | (456) Comments: not relevant | (457) Comments: There are no statutory provisions to this effect, but the parties can agree that the derivatives will continue, as they are part of the cover pool and hence outside the bankruptcy estate of the credit institution. | (458) Comments: If entered into the cover pool. |
(459)
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. |
(460) Comments: The SPE which holds the cover assets enters into all derivatives directly. | (461) Comments: Even though it is not stated openly, a manager (pool administrator) will be appointed after the credit institutions's insolvency, and only that manager can decide to register or de-register derivatives recorded in the cover register. | |||||||||||||||||
| 6. If derivatives are permitted in the cover pool, what is their ranking? |
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| (462) Comments: n.a. | (463) Comments: The interest rate swap is senior to CB holders. The exchange rate swap is pari-passu, once cash flows start flowing under this swap (following an Issuer Event of Default) | (464) Comments: Covered bonds holder have preference over the issuer’s insolvency state. | (465) Comments: not relevant | (466) Comments: Under all covered bond programmes payments of termination amounts due as a result of a default or downgrade of a swap provider rank junior to covered bond payments. Other payments under (i) the cover pool swap (total return swap) rank senior to covered bond payments and (ii) the covered bond series swaps (interest rate swaps and/or structured swaps) rank pari passu with covered bond payments. | (467) Comments: The law permits claims of derivative counterparties to rank pari passu with covered bondholders. In theory it would be possible for such claims to also be subordinated, but this is contrary to market practice. | (468) Comments: The sums due under the derivatives entered into by SCFs to cover their assets and liabilities elements and to manage or cover the global risk on their assets, liabilities and off-balance-sheet items have privileged status. The sums due under derivatives used to cover the non-privileged debts of the SCF do not have such privileged status. | (469) Comments: Derivatives are not permitted in the cover pool. | ||||||||||||||||||
| VIII. RISK WEIGHTING & COMPLIANCE WITH EUROPEAN LEGISLATION | |||||||||||||||||||||||||
| 1. Does the covered bond fulfil the criteria of UCITS 22(4)? |
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(470)
Comments: The risk weighting of covered bonds (both Greek and foreign) is regulated by Part B par. 8 2588/20.8.2007, transposing part of the Capital Requirements Directive into Greek law. According to this bonds falling within the provisions of art. 22 par. 4 of the UCITS Directive are considered to constitute covered bonds, provided that the cover pool consists of the assets enumerated in the Capital Requirements Directive. By way of exception, bonds issued before the 31st December 2007 and falling within the provisions of art. 22 par. 4 of the UCITS Directive are considered as covered bonds, even if the cover assets do not comply with the Capital Requirements Directive. covered bonds have a risk weighting of 10%, if openings to the issuing credit institution have a risk weighting of 20%, and a risk weighting of 20%, if openings to the issuing credit institution have a risk weighting of 50%. Directly issued Greek covered bonds comply with both the UCITS Directive and the Capital Requirements Directive and therefore have the reduced risk weighting mentioned above in Greece and should also have it in other EU member states. In relation to indirectly issued covered bonds it must be noted that they do not fall within the letter of art. 22 par. 4 of the UCITS Directive, because they are not issued by a credit institution. |
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| 2. Does the covered bond legislation completely fall within the criteria of the Annex VI, Part 1, Paragraph 68 (a) to (f) of the Capital Requirements Directive (CRD)? |
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(471)
Comments: (Answer is Yes and No). CRD-compliance is optional for covered bonds registered by the Dutch Central Bank. In practice all programmes are both UCITS- and CRD-compliant. In its public register the Dutch Central Bank indicates for each programme registered by it whether it has assessed the programme to be UCITS-compliant or both UCITS- and CRD-compliant. |
(472)
Comments: The risk weighting of Covered Bonds (German Pfandbriefe and other Covered Bonds) is regulated by Article 20a Kreditwesengesetz (KWG) and the Solvabilitätsverordnung (SolvV), transposing the Capital Requirements Directive into German law. The CRD has been transposed literally, however without admitting MBS as eligible cover assets. According to these rules, German Pfandbriefe enjoy a 10 % risk weight as they fully comply with the CRD requirements (§ 20a KWG). If German Pfandbriefe are bought by foreign investors, the risk weighting depends on the investors’ home country rules, which in many European countries also apply 10 % risk weight. Foreign covered bonds enjoy a 10% risk weighting in Germany, provided that they comply with the requirements of Article 20a KWG. |
(473)
Comments: Yes AND No. The Covered Bond Law allows covered bonds to be backed by certain assets (e.g. exposures to UK housing associations) which are not listed in the CRD. However, all of the UK Regulated Covered Bond programmes are backed by residential mortgages and are CRD-compliant. |
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| 3. Are listed covered bonds eligible in repo transactions with the national central bank? |
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| (474) Comments: Due to the currency board currently it is not possible to do repo transactions with the Bulgarian National Bank. | (475) Comments: The Euro denominated Covered Bonds are eligible to be used as collateral in repo transactions with the ECB, however are not eligible for repo transactions with the Bank of Canada as they are not C$ denominated | (476) Comments: Also with the ECB. | (477) Comments: With SNB, (also ECB as senior corporate bond). | ||||||||||||||||||||||
| 4. Are there any special investment regulations regarding covered bonds? |
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| (478) Comments: In the specific regulations for regulated market participants (i.e. Social Assurance Code, Health Assurance Act, etc.) | (479) Comments: In accordance with the relevant European Directives, as applicable, investing UCITS, insurers, investment firms and credit institutions can benefit from more relaxed investment limits, lower risk weightings, lower Loss Given Default Values and recognition of a counterparty's own covered bonds as collateral under repo's. | (480) Comments: Higher investment limits apply: e.g. 25% investment limit for investment funds. | (481) Comments: Investment funds can invest a maximum of 25% of their own funds in a single issuer’s covered bonds. 10% BIS weighting since it meets UCITS 22(4) criteria. | (482) Comments: Special and wide limits for banks and insurance companies' investments in covered bonds in the large exposure regulation | (483) 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). | (484) Comments: Investment funds can invest a maximum of 25% of their own funds in a single issuer’s covered bonds. 10% BIS weighting since it meets UCITS 22(4) criteria. | |||||||||||||||||||
| IX. ADDITIONAL INFORMATION | |||||||||||||||||||||||||
| 1. Link to National Association representing covered bond interests |
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| 2. Link to national regulators and supervisors |
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| 3. Fact Book Country Chapter |
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| 4. Hypostat Country Chapter |
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