The European Commission will present a legislative proposal for an EU covered bond framework in the first quarter of next year, it confirmed today (Thursday), while also announcing that it will assess the case for the development of European Secured Notes to finance SME and infrastructure loans.

The European Commission today published a mid-term review of its Capital Markets Union project, announcing a package of measures intended to strengthen the European economy, including its long-awaited verdict whether and how national EU covered bond frameworks should be harmonised.

The Commission said it will put forward a legislative proposal for an EU-wide framework for covered bonds in the first quarter of next year, as had been expected.

“This will aim to create a more integrated covered bond market in the EU, without undermining the quality of existing covered bonds,” said the Commission. “Covered bond markets are an important channel for the long term financing of the real economy.”

The eventual legislative proposal is expected to be influenced by a three step approach to covered bond harmonisation proposed by the European Banking Authority in December, the merits of which were cited by a recent draft European Parliament report and an independent study conducted on behalf of the Commission.

The Commission said it will in parallel assess the case for developing European Secured Notes (ESNs) – a covered bond-style, SME-backed product proposed by the European Covered Bond Council (ECBC) – for the financing of SME and infrastructure loans. It indicated that any announcement in this regard will come in the second quarter of next year.

Responding to the Commission’s announcements, the EMF-ECBC (European Mortgage Federation-ECBC) this afternoon said it backs the concept of a high quality principles-based EU framework for covered bonds that does not adversely affect well-functioning national markets.

It also decided at a board meeting in Rome today to establish two new dedicated taskforces, one on the EU framework for covered bonds and one on ESNs, “to support the relevant institutions at national and European level “in their work avoiding any unintended consequences and developing the new ESN asset class”.

“The funding of the real economy is our members’ raison d’être and our industry is fully aligned with the objectives of the CMU,” said Luca Bertalot, secretary general of the EMF-ECBC. “We are delighted to see that our initiatives, such as the Covered Bond Label, the European Secured Note and the Energy Efficient Mortgage, are gaining traction within markets and the European Institutions.

“We are also very supportive of the European Commission’s approach towards developing an EU framework for covered bonds. As such, through our taskforces and wider network of member experts, we stand ready to offer technical support to the European institutions in the next phase of the construction of the CMU.”

Photo: Valdis Dombrovskis and Jyrki Katainen announcing the Commission plans today; Copyright: EU