The European Covered Bond Council is set to support a three-step approach to covered bond harmonisation that the European Banking Authority is preparing to recommend to the European Commission, the ECBC’s Luca Bertalot told The CBR ahead of an EBA hearing today (Friday).

The EBA is this afternoon holding a hearing at which it will outline its “recommendations on the harmonisation of the covered bond frameworks in the EU” before finalising its proposals to deliver to the European Commission and other European bodies in December. The proposals are seen as being a key input into the Commission’s thinking for when it will next year finalise any action on harmonising covered bonds.

The EBA released a presentation outlining key elements of its approach on Friday and EBA officials yesterday (Thursday) discussed its recommendations with the ECBC in Brussels at an event also attended by European Commission representatives.

The EBA’s proposals are still to be finalised, but Luca Bertalot, secretary general of the European Mortgage Federation-European Covered Bond Council, told The Covered Bond Report that they are encouraging.

“There is potentially general support from the ECBC to the approach, which responds to our request to have a principles-based solution for covered bonds,” he said. “All the members agree that it is very well structured.”

“We still have to be very careful because the devil is in the detail,” he added, “and there are different areas that have to be looked at very carefully to avoid any unintended consequences or damage to the market. The purpose here is to improve the covered bond market, without creating any collateral damage.”

Moody’s said yesterday that the EBA recommendations are credit positive.

“The EBA’s proposals, if implemented, would raise standards in certain jurisdictions by requiring a number of credit-positive features that are not yet standard across the market,” it added.

Many market participants have said the proposals should not prove disruptive to current market and national practices – something that had been raised as a potential concern during a Commission consultation.

“Overall, we think that the proposals are well-balanced, not controversial, and should be regarded as positive for the asset class,” said Joost Beaumont, senior fixed income strategist at ABN Amro. “They will enhance the existing rules and guidelines for what defines a covered bond as well as the underlying assets, taking away possible worries at investors.

“At the same time, the EBA has taken a principle-based approach, recognising the merits of different covered bond frameworks. What is more, we do not think that the recommendations will have a significant impact on current covered bond frameworks as well as markets, as they seem to stay close to recent common practice.”

Bertalot said that the European authorities had recognised that “regulation is not always the solution”.

“They both praised the Covered Bond Label initiative, which shows that this market is able to do what is necessary to improve,” he added.