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Capital Markets

Constructive conservatism

Germany's Pfandbrief issuers are getting ready for the new law that comes into effect in July. Now they, potential new issuers and an increasingly diverse investor base are focusing on the opportunities that the revised regulatory regime may provide. Will the new legislation help to hasten the internationalisation of the asset class?

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"ALL CONSERVATISM IS based upon the idea that if you leave things alone you leave them as they are," said the English writer GK Chesterton. "But you do not. If you leave a thing alone, you leave it to a torrent of change."

He could almost have been talking about the German capital markets. The Pfandbrief market has certainly been subject to a torrent of change. Outside Germany, new covered bond markets have grown up. Inside Germany, the Landesbanken and Sparkassen are losing their state guarantees. The pending transformation of the Pfandbrief market shows how conservatives sometimes have to take vigorous action. Leaving things alone has not been an option.

From July 19, the day after the Landesbanken and Sparkassen lose their guarantees, all Pfandbriefe will be issued under a single new German Pfandbrief Law. This supersedes the three existing laws that provided the framework for, respectively, mortgage-backed covered bonds, public sector-backed covered bonds, and ship finance-backed covered bonds. The new law does away with the specialist banking principle. All German banks will be able to issue Pfandbriefe.

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