Moody’s believes that the goal of a rescue of Düsseldorfer Hypothekenbank was the maintenance of the untarnished reputation of the Pfandbrief, it said today (Thursday), noting that wider systemic support for covered bonds across Europe was evident in recent test cases.

The Association of German Banks (BdB) on Sunday announced that it would step in to support the troubled German lender and Moody’s said that this was necessitated by DuessHyp’s exposure to Heta Asset Resolution.

Moody’s noted that Duesshyp is a relatively small Pfandbrief issuer, with its Eu3.7bn of outstandings only about 1% of the total market.

“This makes the rescue more noteworthy since DuessHyp’s failure would not have constrained the availability of lending to the general economy,” it said. “Instead, we think the banking industry’s aim in the rescue was to maintain the untarnished reputation of the Pfandbrief product, which is an important funding source for German banks.”

The rating agency said that the rescue is a credit positive for Pfandbriefe and confirms strong systemic support for German Pfandbriefe.

Moody’s more generally noted that, coming after Heta covered bonds were protected by Austria earlier this month, recent test cases have confirmed its expectation of strong support for European covered bonds. Nineteen European covered bond issues defaulted on their senior unsecured or subordinated debt during the financial crisis, according to Moody’s, but covered bondholders never needed to rely exclusively on the cover pools.

“Instead, key operations were transferred to another existing bank, the bank continued to operate after resolution and toxic assets were either transferred to a bad bank or another solution was found,” said the rating agency. “As a result, we think European authorities are very likely to take steps to ensure the continuity of covered bond payments when the bank supporting the covered bonds is in resolution, and we reflect this in our assessment of European covered bonds issued under special covered bond laws.”