Still hope for US covered bonds
Congress's decision not to include covered bonds in its financial reform has been met with disappointment. But many are confident of legislation later this year.
"The falling short, by one vote, to provide a statutory framework for US banks to issue covered bonds is a lost opportunity to kick-start the private US market for financing residential mortgage loans," said Jerry Marlatt, senior of counsel at Morrison & Foerster.
Such a move would have been hugely significant. "It would have put US banks more in line with their Canadian and European counterparts," added Marlatt.
Despite the feeling that this was a missed opportunity, there have been encouraging signs from both the House of Representatives and the Senate that covered bond legislation is still possible.
Scott Stengel, Orrick partner in Washington DC and member of the Steering Committee for the US Covered Bond Council, is heartened by Senate Chairman Christopher Dodd's commitment to hold a hearing this summer and House Chairman Barney Frank's promise to mark up the Garrett-Kanjorski-Bachus US Covered Bond Act.
"This is quite encouraging and I am optimistic that we will see covered bond legislation in the near future," he said.
During the conference process, House representatives were pushing for covered bonds to be included in last July's's bill, but the Senate was not entirely comfortable.