An own initiative report envisaging three tiers of covered bonds – Premium, Ordinary and ESNs – was approved by the European Parliament’s Committee on Economic & Monetary Affairs (ECON) yesterday (Tuesday) after only minor changes, and it is now set for a plenary vote next month.

The report – a draft of which was published on 27 March – represents the Parliament’s early input into discussions how to harmonise EU covered bonds – something the European Commission two weeks ago confirmed it will propose legislation on.

The report is aligned with many of the European Banking Authority’s recommendations under its three-step approach.

However, it includes additional proposals, notably calling for the creation of European Secured Notes (ESNs), as proposed by the European Covered Bond Council for SME and infrastructure finance, while splitting more traditional instruments into Premium Covered Bonds and Ordinary Covered Bonds.

See our conference coverage for further discussion.

In the EBA’s proposals, its first two “steps” amount to two different levels of regulatory treatment, but the regulator has not delineated an ESN-type instrument. The Commission has meanwhile stressed the need to support the quality of existing instruments and is planning to assess the case for ESNs in parallel with putting together a legislation.

In the ECON vote the report won a “strong majority”, according to Lucke, a founder of Alternative für Deutschland (AfD) and now MEP for Germany’s Liberal Conservative Reformers (LKR).

Only minor amendments to the initially-published draft were made, although one notable change is a carve-out from certain liquidity facility requirements for match-funded, soft bullet and conditional pass-through covered bonds, which was proposed by Danish social democrat MEP Jeppe Kofod.

A wide variety of amendments had been proposed, including a rejection of ESNs by Portuguese communist MEP Miguel Viegas, who proposed a statement that “European covered bonds do not add anything positive to business financing and may even introduce factors of confusion and make the markets more opaque”.

The Committee said a plenary vote on the draft proposal is now expected to take place during the July session in Strasbourg.