The House Financial Services Committee has included covered bonds on its agenda for the 113th Congress. No mention is made of the funding instrument in the Senate Banking Committee’s corresponding plan for the year, although it will be exploring housing finance policy options.

Representative Jeb Hensarling (R.)

Covered bonds are among areas listed in an HFSC oversight plan completed for a 15 February deadline for House of Representative standing committees to produce agendas listing areas they expect to deal with in the new Congress. The HFSC agenda was submitted by Republican Representative Jeb Hensarling, who has succeeded Representative Spencer Bachus, also Republican, as chairman of the HFSC.

“The Committee will review the potential for covered bonds to increase mortgage and broader asset class financing, improve underwriting standards, and strengthen US financial institutions by providing a new funding source with greater transparency, thereby fostering increased liquidity in the capital markets,” reads the oversight plan.

“The Committee will also review whether existing regulatory initiatives, including the Department of the Treasury’s Best Practices for Residential Covered Bonds—and the FDIC’s covered bond policy statement to facilitate the prudent and incremental development of the US covered bond market—are sufficient to foster the creation of a covered bond market in the United States, or whether additional regulatory or legislative initiatives are necessary.”

The HFSC passed the United States Covered Bond Act of 2011 (HR 940) back in June 2011, but it has yet to make it to the floor of the House of Representatives. Republican Representative Scott Garrett, who co-sponsored that bill with Democrat Representative Carolyn Maloney, said in January that he hopes to pass covered bond legislation this year.

When the bill was passed by the HFSC in 2011, its supporters argued that the lack of any covered bond issuance by US financial institutions since 2007 was evidence that legislation was necessary to foster a US market and that the Best Practices for Residential Covered bonds and Federal Deposit Insurance Corporation’s policy statement were insufficient. FDIC concerns about covered bonds subordinating the Deposit Insurance Fund and potentially forcing costs onto taxpayers are seen as the main obstacle to the passage of legislation.

Some members of the Senate Banking Committee, the HFSC counterpart in the upper house, have indicated support for covered bond legislation, but it is yet to hold a hearing on any bill. Covered bonds are not directly included on its agenda for the year, but this does not preclude it from holding hearings on them and the committee will “seek bipartisan consensus on various long term housing finance policy options”, it said.

The HFSC oversight plan can be found here.

And the Senate Banking Committee’s here.