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House panel approves covered bond bill

Thursday 23 June 2011 - by Andrew Hickley

The US House Financial Services Committee has approved a bill looking to create a legislative framework for the issuance of covered bonds.

Voted in by 45 votes in favour to 7 against, the bill defines key legal and regulatory issues for the mortgage-backed security while outlining the process if an issuer were to default.

Under the proposals, the asset classes eligible for issuance would extend further than those allowed in European regulation and include home mortgages, credit cards and car loans.

Congressman Scott Garrett, who introduced the bill, said: "I'm excited to see this kind of progress on the covered bonds bill in the Financial Services Committee and I am eager for it to receive consideration on the house floor as soon as possible.

"Our economy continues to face serious challenges on the road to recovery and the lack of available credit only makes things more difficult for America's job creators to begin hiring again.


"A US covered bond market will both generate increased liquidity in the credit markets and level the playing field for US financial institutions to better compete with their foreign counterparts."

While the White House reportedly supports the bill, it is understood that a companion bill in the Senate may be needed in order for the regulation to proceed further.

A mainstay in Europe for around 250 years, covered bonds are a debt security backed by a pool of high-quality assets.

When the valuation of an asset in the pool decreases it must be replaced, with the pool acting as a safeguard should the issuer become insolvent.


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