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Questions Norwegian Covered Bonds
I. STRUCTURE OF THE ISSUER
1. Who is the issuer?
  • Specialized credit institution
2. Does the bondholder have recourse to the credit institution?
  • Yes, direct
3. Who owns the cover assets?
  • The issuer directly
4. Is the issuer the originator of the assets?
  • Yes
  • No
(1) Comments: Loans are originated partly by the issuer, partly acquired from parent bank or from another bank.
II. FRAMEWORK
1. Are the bonds governed by a special covered bond Legislation?
  • Yes
2. What is the legal framework for bankruptcy of the issuer of covered bonds?
  • Specific legal framework superseding the general insolvency law
III. COVER ASSETS
1. What types of assets may be included in cover pools?
  • Exposures to public sector entities
  • Mortgage loans (Mortgage loans for the purpose of this question are taken to include guaranteed real-estate loans.)
  • Group originated Senior MBS
  • Senior MBS issued by third parties
(2) 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.
2. What is the geographical scope for public sector assets?
  • EEA
  • OECD
3. What is the geographical scope for mortgage assets?
  • Domestic
  • EEA
  • OECD
(3) Comments: EEA and OECD countries (today mainly domestic)
4. Are regular covered bond specific disclosure requirements to the public mandatory?
  • No
IV. VALUATION OF THE MORTGAGE COVER POOL & LTV CRITERIA
1. LTV is calculated using which valuation?[4]
  • Market value
(4) Comments: Prudent market value
2. Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  • Residential      
    75%
  • Commercial      
    60%
3. Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
  • Yes
4a. Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)?
  • Residential      
  • Commercial      
(5) 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
4b. Is there an LTV cap which would require a loan to be removed from the cover pool?
  • No
(6) Comments: It is not required to remove the loan from the cover pool once included but it does not count when testing the coverage.
5. Is there any additional LTV limit on a portfolio basis?
  • No
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?
  • Yes
(7) 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.
2. What is the primary method for the mitigation of market risk?
  • Use of derivative hedge instruments
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:
  • By the time of issue of covered bonds or entry of asset in the cover pool
4. What type of coverage test is applied?
  • Present value cover
(8) 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.
5. What is the frequency of coverage calculations?
  • Daily
6. What types of stress scenarios are applied?
  • Static
(9) Comments: Stress tests are required to test the value cover and the liquidity reserve.
7. What is the frequency of stress test calculations?
  • Other
(10) Comments: Periodically
. Exposure to liquidity risk
8. Is exposure to liquidity risk required to be mitigated by law or contract?
  • Yes
9. What is the primary method for the mitigation of liquidity risk on interest payments?
  • Liquidity facilities
(11) Comments: Liquid assets and liquidity facilities.
10. What is the primary method for the mitigation of liquidity risk on principal payments?
  • Liquidity facilities
  • Contractual arrangements, e.g. maturity extension or prematurity test
(12) Comments: Liquid assets and liquidity facilities.
11. Is there any grace period in case of a breach of liquidity risk mitigants?
  • At the discretion of the relevant party
(13) Comments: It is the supervisor who decides how to respond in case of any breach.
12. What is the consequence of not fixing a breach of liquidity risk mitigants?
  • Other regulatory or rule-based action
. Monitoring of exposures to market and liquidity risk
13. Who monitors the maintenance of coverage tests?
  • Rating agency
  • Trustee/cover pool monitor
(14) Comments: Cover pool monitor
14. Are there any regular public reporting requirements for market and liquidity risk?
  • No
. Overcollateralisation
15. Is mandatory minimum overcollateralisation required?
(15) Comments: No
16. What is the level of minimum mandatory overcollateralisation?
17. If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected?
  • Yes
(16) 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.
18. Is there any grace period in case of a breach of the coverage test?
  • Length of period:
(17) 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.
19. What is the consequence of not fixing a breach of the coverage test?
  • Programme freeze (neither sale of assets nor new issuance allowed)
  • Alternative administration
(18) Comments: Supervisor’s intervention: Supervisor may i.a. disallow or suspend new issuance of CBs.
VI. COVER POOL MONITOR & BANKING SUPERVISION
1. Is a special license required for the issuing of covered bonds?
  • Yes with additional requirements compared to general banking supervision regulations
2. Are there special reporting duties of the covered bond issuer to the supervision authority concerning covered bonds and the cover pool, which go beyond the regular banking supervision?
  • Periodic reporting required
  • Reporting on demand for special occasions
(19) 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
3. What is the role of the banking supervision regarding covered bonds?
  • No special role
(20) Comments: Supervises the issuer and appoints the cover pool supervisor
4. Is there a special role of banking supervision in crisis regarding covered bonds?
  • No specific role
5. Is there a cover pool monitor independent from the issuer?
  • Yes
6. If there is an independent cover pool monitor, what are its duties?
  • Reporting duties to the supervision authority
  • Verification of coverage tests
  • Other, please specify:      
VII. SEGREGATION OF ASSETS & BANKRUPTCY REMOTENESS OF COVERED BONDS
1. Do covered bonds automatically accelerate when the credit institution goes insolvent?
  • No
2. What is the cover pool?
  • All assets on the cover register
3. How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer?
  • Preferential claim by law
4. Is there recourse to the credit institution’s insolvency estate upon a cover pool default?
  • Yes, pari passu with unsecured creditors
5. Are there provisions that require derivatives to continue in case of insolvency of the credit institution?
  • Yes
6. If derivatives are permitted in the cover pool, what is their ranking?
  • Pari passu to covered bond holders
VIII. RISK WEIGHTING & COMPLIANCE WITH EUROPEAN LEGISLATION
1. Does the covered bond fulfil the criteria of UCITS 52(4)?
  • Yes
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)?
  • Yes
3. Are listed covered bonds eligible in repo transactions with the national central bank?
  • Yes
4. Are there any special investment regulations regarding covered bonds?
  • Yes
(21) Comments: Special and wide limits for banks and insurance companies' investments in covered bonds in the large exposure regulation
IX. ADDITIONAL INFORMATION
1. Link to National Association representing covered bond interests
 
2. Link to national regulators and supervisors
3. Fact Book Country Chapter
  • Chapter
 
4. Hypostat Country Chapter
  • Chapter
 

Comments for your selection

  • 1: Loans are originated partly by the issuer, partly acquired from parent bank or from another bank.
  • 2: 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.
  • 3: EEA and OECD countries (today mainly domestic)
  • 4: Prudent market value
  • 5: 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
  • 6: It is not required to remove the loan from the cover pool once included but it does not count when testing the coverage.
  • 7: 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.
  • 8: 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.
  • 9: Stress tests are required to test the value cover and the liquidity reserve.
  • 10: Periodically
  • 11: Liquid assets and liquidity facilities.
  • 12: Liquid assets and liquidity facilities.
  • 13: It is the supervisor who decides how to respond in case of any breach.
  • 14: Cover pool monitor
  • 15: No
  • 16: The law requires that the value of the cover pool shall exceed the value of the covered bonds. No specific OC level are required.
  • 17: 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.
  • 18: Supervisor’s intervention: Supervisor may i.a. disallow or suspend new issuance of CBs.
  • 19: 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
  • 20: Supervises the issuer and appoints the cover pool supervisor
  • 21: Special and wide limits for banks and insurance companies' investments in covered bonds in the large exposure regulation