A pan-Baltic covered bond framework is in the works and expected to be one of the first fruits of an agreement between the finance ministries of Estonia, Lithuania and Latvia signed yesterday, with implementation of the relevant legislation in 2018 targeted.

As previously reported, the finance ministries of Estonia, Lithuania and Latvia have been working with the European Bank for Reconstruction & Development (EBRD) to explore the possibility of a pan-Baltic covered bond framework that would facilitate the cross-border pooling of assets from the three countries for covered bond issuance.

The project is supported by the European Commission, as part of the Capital Markets Union (CMU) initiative.

The ministers of finance of the three countries signed a Memorandum of Understanding (MoU) in Brussels yesterday (Monday), agreeing to work together to harmonise capital market regulations and dismantle investment barriers.

The creation of a pan-Baltic legal covered bond framework will be one of the first projects under the agreement, with assistance provided by the EBRD and the European Commission’s Structural Reform Support Service (SRSS).

The coalition aim to implement the harmonised covered bond law in 2018, an EBRD official told The CBR.

In a joint statement, the three finance ministers said that harmonising their countries’ capital markets will combine their strengths and overcome constraints they face due to their relatively small sizes, highlighting the potential for attracting new international investors.

“Our common efforts will ensure significant economic benefits, for instance, a pan-Baltic asset class in covered bonds is more likely to be attractive for international investors thus improving the available funding options for the local capital market,” said Dana Reizniece-Ozola, minister of finance of Latvia.

European Commission vice president Valdis Dombrovskis said the project is another step on creating a Capital Markets Union (CMU).

“The Commission fully supports regional initiatives to facilitate cross-border investments and integrate member states’ capital markets,” he said. “Our Structural Reform Support Service stands ready to step up its support for reforms that modernise economies, strengthen competitiveness, and encourage investment and looks forward to working with the three Baltic states on the creation of new instruments in the region.”