A strict review of covered bond markets by the European Banking Authority is among amendments to CRD IV tabled yesterday (Monday) by UK Conservative MEP Vicky Ford, a member of the European Parliament’s Economic & Monetary Affairs Committee, with reviews of asset encumbrance and eligibility for LCRs also proposed.

Ford said that this series of amendments – among over 190 that she tabled – is to ensure that EU covered bonds do not cause the same damage as some US mortgage backed securities did in the run-up to the financial crisis.

“Looking to the future, I have also proposed a number of measures regarding covered bonds. These are intended to help mortgage holders, investors and depositors,” she said. “In some countries these bond structures have been around for many decades but the markets have ballooned massively since the financial crisis.

“We need to make sure that we learn the lessons of the disastrous US mortgage backed securities market and ensure that covered bonds don’t go the same way.”

Her proposed amendments include, in the words of a statement released on the European Conservatives & Reformists Group website:

• A full review of the EU covered bond markets to be undertaken by the European Banking Authority, clearer disclosure requirements on the quality and performance of underlying assets in covered bond and securitisation structures, and ensuring that the legislation prevents preferential treatment for slicing and repackaging of covered bond structures.

• Supporting depositors and other unsecured bank creditors by recommending a full review of encumbered asset markets and a potential new ratio to ensure banks maintain sufficient unencumbered assets so that depositors do not find themselves in a position where all the banks’ best assets have been promised to others.

• A full review of the liquidity of different asset classes including sovereign debt, residential mortgaged backed assets, covered bonds, equity and commodities (including gold, oil and other highly liquid markets) before deciding which of these assets banks should be encouraged to invest in for liquidity purposes.

Industry bodies such as the Association for Financial Markets Europe (AFME) have been lobbying for a wider range of assets to be eligible for liquidity buffers under Basel III/CRD IV.

Ford said that her overall package of amendments is aimed at protecting EU member states’ powers to tackle emerging systemic risk, encouraging lending in the real economy, and protecting against future crises.

She also proposed removing the zero risk weighting of European sovereign debt where the country is in breach of EU deficit rules.