Covered bond: Difference between revisions
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{{ | {{fwmd|Covered bond}} | ||
[[Covered bond]]s are [[Debt security|debt securities]] issued by a financial institution and [[secured]] against a pool of assets designed to cover bondholder claims at any point of time. The assets stay on the bank’s balance sheet but, by dint of the security arrangements in favour of bondholders, are preferred claims in the insolvency of the issuer. They are excluded from the ravages of [[BRRD]], among other things (see [https://eba.europa.eu/regulation-and-policy/single-rulebook/interactive-single-rulebook/-/interactive-single-rulebook/toc/2602/article-id/2920 Art 44(2)]). | |||
===Compared with [[ABS]]=== | ===Compared with [[ABS]]=== | ||
Under a covered bond, assets remain on the balance sheet of the financial institution. Under [[asset-backed security|asset-backed securities]] the financial instrument transfers them to an [[espievie]] and so gets them off balance sheet altogether. This means if defaults in the asset pool are higher than anticipated, the ABS holder wears the losses. In the case of the covered bond, the Issuer still has to pay. | Under a covered bond, assets remain on the balance sheet of the financial institution. Under [[asset-backed security|asset-backed securities]] the financial instrument transfers them to an [[espievie]] and so gets them off balance sheet altogether. This means if defaults in the asset pool are higher than anticipated, the ABS holder wears the losses. In the case of the covered bond, the Issuer still has to pay. | ||
{{ | {{sa}} | ||
*[[Financial weapons of mass destruction]] | |||
Latest revision as of 13:30, 14 August 2024
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| Docs | Prospecti, trust deeds, indentures, fiscal agency arrangements, security documents: Tedious yawnfest. | 6 |
| Amendability | Low. But little real need. | 4 |
| Collateral | I got you covered, Virgil. | 3 |
| Transferability | Pretty good all told. | 2 |
| Leverage | Nope fully funded. | 0 |
| Fright-o-meter | Well it's mortgage backed so there's a little squeaky bummism there but basically snoresville. | 3 |
Covered bonds are debt securities issued by a financial institution and secured against a pool of assets designed to cover bondholder claims at any point of time. The assets stay on the bank’s balance sheet but, by dint of the security arrangements in favour of bondholders, are preferred claims in the insolvency of the issuer. They are excluded from the ravages of BRRD, among other things (see Art 44(2)).
Compared with ABS
Under a covered bond, assets remain on the balance sheet of the financial institution. Under asset-backed securities the financial instrument transfers them to an espievie and so gets them off balance sheet altogether. This means if defaults in the asset pool are higher than anticipated, the ABS holder wears the losses. In the case of the covered bond, the Issuer still has to pay.