Representatives of the European Parliament and the Romanian Presidency of the Council of the EU reached a provisional political agreement on Tuesday night, 26 February, on the proposal to create a European label for covered bonds (see EUROPE 11979).
As a reminder, a covered bond is a debt issued by a credit institution and guaranteed by a separate basket of hedging assets over which investors have a preferential right in the event of default by the issuer.
The new framework, laid down by a proposal for a directive and a regulation, establishes the structural characteristics of the instrument, the rules allowing the use of the European guaranteed bond label and the conditions for granting preferential prudential treatment to guaranteed bonds under the Capital Requirements Regulation, ‘CRR’.
While the Council's position broadly reflected the main elements of the Commission's proposal (see EUROPE 12148), the Parliament had introduced a distinction between “high quality covered bonds” (‘European premium covered bonds’), which should meet higher criteria on the quality of assets specified in Article 129 of the CRR, and other ‘European covered bonds’, which meet only the criteria laid down in the Directive (see EUROPE 12141). This distinction was indeed included in the final text, confirmed a source familiar with the file.
Article 6 of the proposed directive, on eligible assets, also gave negotiators some difficulties. According to a note from the Romanian Presidency of the Council of the EU, consulted by EUROPE, it constituted a “red line” for both the Council and the Parliament.
During the negotiations, while the Council defended the need to take into account the national specificities of the Member States in order to avoid disrupting existing markets that work well, the Parliament also raised several concerns related to the inclusion of loans to public undertakings as eligible assets.
Finally, a compromise was reached on the inclusion of these loans, which will be accompanied by a whole series of safeguards and controls for public undertakings. (Original version in French by Marion Fontana)