The ECB is renaming a recently introduced field in its eligible assets database “to avoid any misunderstanding” that the Eurosystem is assessing and deciding on the CRD-compliance of certain covered bonds, which it is not, according to an ECB spokesperson.

In late May the European Central Bank (ECB) introduced a field named “CRD_or_Equivalent”, for which there were four possible values: CRD_COMPL, EQUIVALENT, NO, N/A. However, according to an ECB document dated 24 July and linked to as of this (Thursday) morning on the ECB website, the ECB will rename the field “Own-use covered bonds”. (See previous coverage for more details.)

An ECB spokesperson today told The Covered Bond Report that the change is being made to clarify that CRD-compliance is used by the Eurosystem as a basis to assess the eligibility of covered bonds for their potential own-use, and that the classification of covered bonds on the ECB’s website has no binding effect for regulatory treatment of those assets, but only relates to their treatment in the Eurosystem collateral framework, in particular the eligibility of certain covered bonds for own-use.

“The related name of the column in the eligible assets database could instead be interpreted in such a way that the Eurosystem is assessing and deciding on the CRD-compliance of covered bonds, which is clearly not the case,” he said. “For this reason, the Eurosystem decided to rename the relevant field, so as to avoid any misunderstanding.”

Indeed, market participants had welcomed the introduction of the CRD_or-Equivalent field as a helpful tool for determining whether a covered bond is CRD-compliant or not, in particular given the addition of a qualifying criterion for preferential risk weight treatment, via CRR Article 129 (7), that requires investors to show certain transparency standards are being met.

However, some already at the time cautioned against equating the ECB’s categorisation to regulatory treatment after having sought feedback from the central bank.

“[W]hen investors examine covered bonds’ preferential treatment within the meaning of Article 129 CRR, they should not rely on the ECB’s categorisation of a bond as CRD-compliant but only take this flag as an indicator of possible capital privileging,” said DZ analysts at the time.

Florian Eichert, senior covered bond analyst at Crédit Agricole, said that the ECB’s decision to rename the field is understandable, with the ECB having in late November 2012 tightened the requirements for own-use of covered bonds by banks from UCITS to CRD/CRR eligibility, or, if the bonds are only UCITS-compliant, requiring that they offer comparable protection to the CRD.

“That’s why they have the field in their own system in the first place – to identify bonds that a counterparty can use,” he said. “They don’t have the responsibility to tell anyone anything about risk weights and CRR compliance otherwise. By changing the wording it seems they are renaming the field into what it was originally intended for.

“We had always looked at the field as the best option for investors to get a third party opinion about CRR compliance. But after the rewording it has become clear that investors can’t use the field for this purpose. The ECB requires CRR compliance or similar safeguards for own-use covered bonds, so a bond that is classified as own-use eligible in the system going forward will not automatically be CRR compliant.”

According to Luca Bertalot, secretary general of the EMF-ECBC, the only places where investors can find out if covered bonds are CRD-compliant is the Covered Bond Label website or issuers’ own websites.

“Only an issuer can know if it is CRD-compliant as this is reflected in the self-certification process required for the Label,” he said, “and the national transparency templates are aligned with Article 129 (7).”

According to the ECB, there will be three possible values for the Own-use field (in its words):

Y which means the covered bond can be mobilised as collateral by its issuer or closely linked entities pursuant to Section 6.2.3.2, 5th paragraph, points (b) and (c) of ‘The implementation of monetary policy in the euro area – General documentation on Eurosystem monetary policy instruments and procedures’.

N which means the provisions as laid down in the “The implementation of monetary policy in the euro area – General documentation on Eurosystem monetary policy instruments and procedures” (General framework) concerning close links do apply.

N/A which means covered bonds issued under non-euro area EEA legislation (e.g. that of Norway) and non-EEA G10 national frameworks (e.g. that of the United States) where no legal assessment regarding own-usability has yet been performed. These covered bonds will only be assessed on request following receipt of a specific legal opinion commissioned by the counterparty that intends to own-use the asset.