The European Central Bank has added a field to its eligible assets database detailing whether or not covered bonds are CRD-compliant, lending its view on a topic that has provoked debate among some market participants after transparency requirements were added under CRD IV/CRR.

The new field went live on the ECB website last Thursday (22 May), according to a document released by the central bank (which also detailed two other changes to the eligible assets list it maintains).

The covered bond field, “CRD_or_equivalent”, has four options, with the ECB having detailed their meaning thus:

CRD_COMPL: the covered bond is CRD-compliant.

EQUIVALENT: the covered bond is not CRD-compliant but equivalent legal safeguards exist.

NO: the covered bond is neither CRD-compliant nor are there any equivalent legal safeguards. Thus, the provisions as laid down in the “General framework” concerning close links do apply.

N/A: covered bonds issued under non-euro area EEA legislation (e.g. Norway) and non-EEA G10 national frameworks (e.g. USA) where no legal assessment has yet been carried out will only be assessed on request following receipt of a specific legal opinion commissioned by the counterparty that intends to use the asset.

The database includes some apparent inconsistencies – with some BPCE SFH covered bonds being tagged as CRD-compliant and others not, for example – but appears for the most part consistent with expectations. The ECB was not reachable for comment today (Thursday) due to a public holiday.

Under Article 129 of the CRR, covered bonds are eligible for preferential risk weighting treatment if investors can demonstrate that they have received certain information on covered bonds and their underlying collateral, and some market participants have suggested that the level of transparency provided by many issuers raises questions over CRD-compliance – although others have played down the issue. Meanwhile analysts have said that ambiguity over just what the regulation implies, particularly with regard to information about currency and interest rate risks, has exacerbated the problem.

Crédit Agricole analysts, who highlighted the ECB move in research today, said that the central bank had done the market “a major favour” by adding the field.

“Investors still have to make a case for each assets’ risk weight with their individual regulator,” said Florian Eichert, senior covered bond analyst at Crédit Agricole, “but making that case has just become a whole lot easier and straightforward in my view.

“That said, I would also think that the ECB field does not prevent investors from trying to make a case that differs from the ECB assessment (multi-cédulas are a ‘no’ in the ECB’s eyes, for example).”

Meanwhile, Luca Bertalot, head of the European Covered Bond Council, said that CRD IV/CRR-compliance is clearly the regulatory benchmark for the future.

“European regulators will use it as basis for convergence, so we are not surprised by this move,” he told The CBR. “In 2013 the Label committee analysed and discussed this topic in depth and decided to fully align the Label to the CRR.”