A bid by countries including Denmark and Germany to win improved treatment for covered bonds in CRD IV than that envisaged under Basel III looks set to fail, with a European Commission draft retaining the 40% limit on such assets in liquidity buffers and 15% minimum haircut.

The Association of Danish Mortgage Banks (Realkreditrådet) and the Association of German Pfandbrief Banks (vdp), leading a group of industry associations from several countries, had argued that the 40% limit should be removed and haircuts aligned with those of central banks for certain covered bonds that meet strict criteria.

However, a draft of CRD IV suggests that their lobbying has been rejected, with the EC retaining the Basel Committee on Banking Supervision’s two key figures with respect to Level 2 assets, under which covered bonds can be included in Liquidity Coverage Ratios.

The EC’s final draft for the fourth amendment to the Capital Requirements Directive, which will implement Basel III in the European Union, is expected either next month or after the summer break, but its position on covered bonds is not expected to change in the meantime.

In March Lars Frisell, chief economist at the Swedish Financial Supervisory Authority and a member of the Basel Committee on Banking Supervision, told a plenary meeting of the European Covered Bond Council that the Commission should stick to the levels set for Basel III.

A market participant said that the Danish-German led initiative to have CRD IV differ from the Basel Committee’s proposals was always a longshot.

“For the directive to contradict the Basel numbers would have been pretty radical,” he said. “The 40% limit was never really up for discussion and while the 15% number might have been changed, it wasn’t.”