The European Commission will consider the merits of introducing an EU framework for covered bonds after reviewing the treatment of the asset class in the CRR, it said today (Thursday), confirming plans previously reported in The CBR.

European Commission, Brussels

The moves were announced as part of a package of measures intended to provide long term financing to meet the needs of the European economy, with the covered bond actions coming under initiatives to “develop European capital markets”.

They are in line with plans reported by The Covered Bond Report in the middle of February on the basis of a leaked draft from the Commission. (See here for previous coverage.)

In an official communication to the European Council and Parliament, the Commission today set out two actions that it will take with respect to covered bonds, both of which target potential harmonisation of the asset class and market in Europe:

• “The Commission will review the covered bonds treatment in the CRR by the end of 2014 with a view to building the basis for an integrated European covered bond market. The review will consider credit quality, eligible collateral and transparency. It could also explore strengthening supervision, enforceability of preferential rights and bankruptcy segregation aspects.”

• “Taking into account the findings of the review described above, the Commission services will launch a study on the merits of introducing an EU framework for covered bonds.”

Covered bonds offer benefits to issuers and investors but there is no single, harmonised framework in the EU, noted the Commission, with some Member States not having specific legislation in place.

However, there has been some progress, it said.

“Some convergence has nevertheless happened following the development of the eligibility criteria for preferential capital requirements in the banking sector into a widely accepted market standard,” according to the Commission.