During the evening of Monday 10 September, rapporteur Bernd Lucke (ECR, Germany) presented the committee on economic and monetary affairs (ECON) of the European Parliament with his vision of the European covered bonds label proposed by the Commission (see EUROPE 11979).
Readers may recall that a covered bond is a debt issued by a bank and guaranteed by a separate basket of plan assets on which investors enjoy preferential rights in the event of the issuer's default.
A pan-European framework for these particular instruments was already called for by the European Parliament in an own-initiative report adopted in July 2017 (see EUROPE 11822). In his draft report, the MEP therefore set the objective of injecting the European Parliament's initial ambition into the Commission's proposal.
Going back to two categories of covered bonds
The rapporteur notes that the Commission did not, as requested by the European Parliament, propose to draw a distinction between premium covered bonds, which would meet higher standards concerning the quality of the assets specified in the 'CRR' prudential regulation, and others not corresponding to these criteria, or ordinary covered bonds.
To remedy this, he suggests splitting article 6 of the proposal concerning eligible assets into two and adding an article 6a for ordinary covered bonds.
The European Parliament also called for preferential regulatory treatment for ordinary covered bonds compared to other forms of credit-backed bonds - a request that is missing from the Commission's proposals.
The rapporteur then suggests amending article 129 of the 'CRR' to add a new paragraph to clarify the risk weightings associated with covered bonds that do not meet the 'CRR' criteria, but do meet the requirements of the European covered bond label.
More specifically, he proposes to give these covered bonds a risk weighting equal to 70% of what the exposure could claim if it were not covered.
Overall, Lucke welcomed the overall positive reactions to this proposal, with the exception of the ALDE, which expressed concerns at a watering-down of the quality of the covered bonds.
European Secured Note
In its own-initiative report, the European Parliament also called for a new framework for European Secured Notes (ESN), instruments that are similar to covered bonds, but for riskier assets such as loans to SMEs and loans financing infrastructure. Despite this request, the Commission has decided to legislate on this point separately and at a later date.
It emerged from the debate that there is, nonetheless, consensus on this absence of a specific measure to relegate certain types of asset into a framework of this kind. “It would be a major risk if we were to create new elements of complexity in the legislative debate that could lead to a potential postponement of the final approval of the package”, said Alfred Sant (S&D, Malta).
Other suggestions, such as the creation of an equivalence regime for covered bonds issued in third countries, or taking extendable deadlines into account, on the other hand, proved more controversial.
The political groups have until 25 September to table their amendments to this report, ahead of a vote by the ECON committee on 5 November. (Original version in French by Marion Fontana)