A deal by HBOS last month signalled the birth of a UK market in
covered bonds. Now all eyes are on regulators to clear up confusion
about the capital that bank investors should hold against
investments in these deals.
The €3 billion issue is the first time a UK bank has tapped
demand for covered bonds from institutional investors in Europe
that have been buying German Pfandbriefe for years. But the bond is
risk weighted at 20% - twice the figure for an equivalent German
deal - so banks that buy it must hold $1.6 million in reserve for
every $100 million invested.
The lawyers that put the HBOS issue together say regulators
should have granted it the same risk weighting used elsewhere in
Europe. But even they admit there is no legal basis for this
because of uncertainty about European Commission rules.
The UK's Financial Services Authority says it stands...
