Old product, new law
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Old product, new law

Another round of changes to financial legislation could reshape the German covered bond market. But it isn’t the new Pfandbrief Act that has got banks most excited. Laurence Neville reports.

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Buschmann: the new law
enables German issuers to
remain competitive

A HUNDRED AND five years after the German Mortgage Bank Act was passed and 10 years after the jumbo Pfandbrief was born, the German covered bond market, rightly seen as the pioneer of the European sector, has just undergone two substantial changes: the new Pfandbrief Act; and a change of law relating to the funding register. The new Pfandbrief Act, which took effect on July 19, was necessitated by two factors. The first was the consolidation of the banking market in Germany, which was blurring distinctions between different types of banks. Despite consolidation, the Pfandbrief market was notable for historical anomalies that gave issuance privileges to specified types of banks, thus reducing competition.

The second and more important factor was the removal of state guarantees for public sector Landesbanken as a result of an edict from the European Commission on unfair competition. Without their state guarantees, Landesbanken would not easily have been able to access highly rated and cost-effective funding.

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