Provisional agreement has been reached on the treatment of covered bonds under some parts of CRD IV, according to an update from the EU Presidency, which The Covered Bond Report understands relate to outstanding matters regarding risk weights such as a waiver on MBS in cover pools and the introduction of transparency requirements.

According to a progress report from the Cyprus EU Council Presidency published on Thursday, provisional agreement has been reached by the Presidency, the European Commission and the European Parliament on several elements of the legislative package.

“Significant progress has been made since the last Presidency report to ECOFIN of 13 November 2012 on the CRD4/CRR legislative package given the constructive approach adopted by all parties to the inter-institutional political negotiations,” said the report.

According to Wolfgang Kälberer, head of EU affairs at the Association of German Pfandbrief Banks (vdp), there were two main areas of concern at the Member State level with respect to the treatment of covered bonds, namely the eligibility of MBS as cover pool assets and transparency requirements – although he noted that the discussions about these matters were constructive and ultimately more of a technical nature.

“The main challenge to covered bonds under CRD IV was the delinkage of the issuer and the covered bond ratings, and that was resolved last year,” he said. “The more recent discussions were add-ons with less systemic relevance.”

The Capital Requirements Directive has for some time included a waiver regarding a limit on the inclusion of senior tranches of self-originated securitisations in cover pools, with this waiver having been periodically extended.

Some EU member states were keen for the waiver to be made permanent, according to Kälberer, but after some intense debate it was decided that the waiver will be prolonged, but made subject to further review.

CRD IV will for the first time introduce transparency requirements for covered bonds, but these will not be on a loan-level basis as is the case for securitisation, as some had pushed for.

“It was recognised that copying ABS requirements over to covered bonds would not be best practice because the products are very different,” said Kälberer, “so the Member States agreed a compromise.”