The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

Editor's letter: Covered bonds bail-in free

Bank debt bail-ins have prompted fierce debate in the banking industry and among fund managers. Spend time in the company of a bank-funding official or an investor in bank debt and it doesn’t take long for them to get a little hot under the collar.

On a recent visit to a prominent London fund manager, Euromoney watched one portfolio manager pound his fist on the table, incredulous that regulators were proposing to turn senior debt instruments into something that begins to resemble equity. Anathema is a word that springs to mind.


As a recent survey of investors conducted by JPMorgan shows, many investors see senior bank debt as less investable if bail-ins are imposed. That’s a worrying prospect for global banks seeking $3 trillion of funding by the end of next year. It raises the question of what will remain an investable asset within the bank debt universe?

The answer could be covered bonds. In theory, covered bonds can’t be haircut – that is, unless you radically change the law. The law as it stands stipulates that covered bonds must be overcollateralized, so that there is an excess of income to meet every interest and principal repayment. In the event of insolvency, the cover pool of the assets behind the bonds gets segregated and separated, and then managed by another party. For example, in Ireland those assets would be managed by the National Treasury Management Authority.


You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree