Irish Senator calls for Danish balance principle in mortgage bond bill
Ireland’s senate is due to tomorrow (Wednesday) discuss a private members bill that would establish a new covered bond system incorporating the Danish balance principle, which the Senator introducing the bill said could apply a “tabula rasa” approach to kickstarting the country’s mortgage system. [Article updated with outside comment.]
The Mortgage Credit (Loans and Bonds) Bill 2012 is sponsored by Senator Seán Barrett and was presented on Thursday. An information session is understood to be scheduled for this (Tuesday) evening, with a discussion in Seanad Éireann (the Senate) lined up for tomorrow.
Barrett is a senior economics lecturer at Trinity College and an independent Senator for the University of Dublin constituency.
The bill is a private members bill, meaning that it is not sponsored by the government and historically bills of this type have not typically become legislation.
A banker in Ireland played down the significance of the bill, noting that the Irish government is planning to abolish the upper house of parliament and that Barrett would not have been familiar with the existing covered bond framework in Ireland when he tabled the bill.
“It’s not something that will travel,” he said.
The bill aims to “create and regulate a mortgage credit loans and bonds system, for the purposes of the orderly operation of the market for mortgages, such that economic activity is encouraged and property is improved via a system of mortgage-credit loans and mortgage-credit bonds”.
It refers to mortgage credit bonds, covered mortgage credit bonds, covered bonds and “other securities issued by mortgage credit institutions and to mortgage credit loans provided on the basis thereof”.
The balance principle in operation in Denmark should serve as a model for the mortgage system in Ireland, which is being hampered by concerns about mortgage arrears and recession-reduced household disposable incomes and their impact on banks’ lending decisions, according to an explanatory memorandum on the bill.
It said that the bill aims to provide “the basis superstructure upon which a balance principle banking system can be built”, leaving Ireland’s central bank to further develop regulations sensitive to local conditions.
“In order to break the links between the banking sector and the sovereign and the sovereign and the banking sector it is useful to put in place a highly regulated tabula rasa approach to kick-starting the mortgage market again,” it said. “The balance principle model has the added benefit that it is already compliant with the Basel III system for international financial regulation.”
Ireland already has covered bond legislation, in the form of the Asset Covered Securities (ACS) Act, although the explanatory memorandum to Barrett’s bill makes no reference to the existing legal framework. The ACS Act was amended in April to increase the portfolio-based LTV limit from 80% to 100%, according to RBS analysts.
The bill can be found here: