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.
Capital Markets

Uncovering US covered bonds

The Federal Deposit Insurance Corporation recently issued a statement laying the foundations for the regulation of a US covered bond market, specifically concerning the preferred treatment of bondholders in the event of an issuer default.

Shortly after, the US Treasury announced its best practices guide for US covered bonds, mirroring the FDIC’s guidelines and making a few additions. The main ones are the limit on eligible mortgages to include only performing, first-lien mortgages with a maximum LTV of 80%, and the restriction of geographic concentration in a single metro area to 20%. Citi, Bank of America, JPMorgan, and Wells Fargo issued a joint statement of support, fuelling optimism for the successful establishment of a US covered bond market.

The proposed framework might be a good thing, giving beleaguered mortgage lenders an alternative and relatively cheap funding source, provided action follows words.

Bankers are hopeful that the clarification of the FDIC’s treatment of covered bond holders will aid issuers and attract investors to the product. However, things might not be so easy. US investors have little or no experience with covered bonds, with only two US institutions having issued so far. And the potential issuers themselves have also shown little understanding of the product. When the FDIC invited suggestions after it released its preliminary covered bond statement in April, many banks were hopeful that the eligible criteria for cover pool assets would be expanded to include, among other things, student loans and credit card receivables.

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