The ECB has welcomed Belgian draft covered bond legislation in an opinion on the country’s plans, with a market participant raising the possibility of a formal legal framework being in place before the Belgian parliament goes into summer recess in July.

The European Central Bank delivered its opinion on Thursday, in response to a February request from the National Bank of Belgium (NBB), acting on behalf of the Belgian ministry of finance, to opine on three pieces of draft legislation, comprising a draft law establishing a legal framework for Belgian covered bonds, a related draft royal decree, and a draft law on various measures to facilitate the mobilisation of claims in the financial sector.

Palace of the Nation, Belgian Federal Parliament

The ECB said that it welcomes the draft legislation (referring to the above three components) “as it will enable credit institutions to issue covered bonds that are attractive to a wide range of investors and expand their ability to use credit claims as collateral, thereby enhancing access to sources of refinancing by credit institutions”.

It recommended two changes, one in relation to the provision that credit institutions may pledge their own covered bonds as collateral for repo with NBB, and another in relation to provisions on maintaining minimum reserves for separate pools of assets with the central bank.

The changes were suggested in light of the “exclusive nature of the Eurosystem’s competence” in these areas.

A market participant familiar with the development of the covered bond legislative project in Belgium said that it is “good news” that the ECB has delivered an opinion. He outlined a timeline that could lead to a formal legal covered bond framework being in place before a parliamentary summer recess begins on 21 July. This is based on a series of steps starting with an inter-cabinet working group meeting next week, whose formal approval is needed in order for the draft legislation to be passed to the Council of Ministers, who will then require the Council of State, an administrative court, to give its advice. This can take anything from three days, in the event of an “emergency”, to one month, after which the draft legislation can be transferred to parliament.

Approval before the summer recess would be the best case scenario, according to the market participant, followed by covered bond voting sessions being included in the parliamentary agenda for the start of the new parliamentary year in the autumn.