Dutch registered CBs programmes
Netherlands Issuers - Legislation
| 1 | Who is the issuer? |
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| 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. |
| 2 | Does the bondholder have recourse to the credit institution? |
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| 3 | Who owns the cover assets? |
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| 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. |
| 4 | Is the issuer the originator of the assets? |
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| 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. |
| 1 | Are the bonds governed by a special covered bond Legislation? |
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| 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. |
| 2 | What is the legal framework for bankruptcy of the issuer of covered bonds? |
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| Comments: An insolvency of the issuer does not result in an insolvency of the SPE owning the cover pool. |
| 1 | What types of assets may be included in cover pools? |
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| 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. |
| 2 | What is the geographical scope for public sector assets? |
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| 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. |
| 3 | What is the geographical scope for mortgage assets? |
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| 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. |
| 4 | Are regular covered bond specific disclosure requirements to the public mandatory? |
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| 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. |
| 1 | LTV is calculated using which valuation?[4] |
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| 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. |
| 2 | Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)? |
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| 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. |
| 3 | Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap? |
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| 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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| 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. |
| 4b | Is there an LTV cap which would require a loan to be removed from the cover pool? |
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| Comments: Any surplus over the LTV cap referred to under question IV.2 above, qualifies as extra credit enhancement. |
| 5 | Is there any additional LTV limit on a portfolio basis? |
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| Exposure to market risk |
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| 1 | Is exposure to market risk (e.g. interest rate, currency risks) required to be mitigated by law or contract? |
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| 2 | What is the primary method for the mitigation of market risk? |
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| 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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| 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. |
| 4 | What type of coverage test is applied? |
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| 5 | What is the frequency of coverage calculations? |
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| 6 | What types of stress scenarios are applied? |
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| Comments: Under all covered bond programmes the asset cover test addresses the set-off risk. |
| 7 | What is the frequency of stress test calculations? |
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| Exposure to liquidity risk |
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| 8 | Is exposure to liquidity risk required to be mitigated by law or contract? |
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| 9 | What is the primary method for the mitigation of liquidity risk on interest payments? |
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| 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). |
| 10 | What is the primary method for the mitigation of liquidity risk on principal payments? |
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| 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. |
| 11 | Is there any grace period in case of a breach of liquidity risk mitigants? |
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| 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. |
| 12 | What is the consequence of not fixing a breach of liquidity risk mitigants? |
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| Comments: All of the above are possible consequences of a breach, in addition to redirection of cash flows. |
| Monitoring of exposures to market and liquidity risk |
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| 13 | Who monitors the maintenance of coverage tests? |
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| 14 | Are there any regular public reporting requirements for market and liquidity risk? |
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| Overcollateralisation |
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| 15 | Is mandatory minimum overcollateralisation required? |
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| 16 | What is the level of minimum mandatory overcollateralisation? |
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| Comments: For all covered bond programmes this is determined using an asset cover test with asset percentages ranging from approximately 70 to 80%. |
| 17 | If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected? |
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| 18 | Is there any grace period in case of a breach of the coverage test? |
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| 19 | What is the consequence of not fixing a breach of the coverage test? |
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| Comments: All of the consequences ticked above are possible consequences of a breach. |
| 1 | Is a special license required for the issuing of covered bonds? |
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| 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. |
| 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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| 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. |
| 3 | What is the role of the banking supervision regarding covered bonds? |
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| Comments: See question VI.1 above. |
| 4 | Is there a special role of banking supervision in crisis regarding covered bonds? |
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| Comments: But see questions VI.1, VI.2 and VI.3 above. |
| 5 | Is there a cover pool monitor independent from the issuer? |
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| 6 | If there is an independent cover pool monitor, what are its duties? |
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| 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. |
| 1 | Do covered bonds automatically accelerate when the credit institution goes insolvent? |
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| 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. |
| 2 | What is the cover pool? |
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| 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. |
| 3 | How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer? |
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| Comments: The assets owned by the SPE are pledged to the trustee acting for the benefit of, amongst others, the covered bondholders. |
| 4 | Is there recourse to the credit institution’s insolvency estate upon a cover pool default? |
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| 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. |
| 5 | Are there provisions that require derivatives to continue in case of insolvency of the credit institution? |
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| 6 | If derivatives are permitted in the cover pool, what is their ranking? |
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| 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. |
| 1 | Does the covered bond fulfil the criteria of UCITS 22(4)? |
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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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| 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. |
| 3 | Are listed covered bonds eligible in repo transactions with the national central bank? |
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| 4 | Are there any special investment regulations regarding covered bonds? |
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| 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. |
| 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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