2010 saw about $30 billion of covered bonds issued in the U.S. by foreign banks. 2011 is starting off strong with approximately $17 billion issued so far. But, no U.S. banks are issuing covered bonds. In the absence of a U.S. covered bond statute, the quasi-securitization structure used by U.S. banks before the financial crisis is now too expensive and not favored by investors. Accordingly, U.S. banks and other potential issuers are following with interest the legislation introduced by Congressman Scott Garrett (R-NJ) on March 8, 2011, entitled “United States Covered Bond Act of 2011” (H.R. 940). The bill was co-sponsored by Congresswoman Carolyn Maloney (D-NY) and was referred to the Financial Services Committee and to the Ways and Means Committee. The bill is similar in most respects to the bill (H.R. 5823) introduced by Congressman Garrett last summer that was approved by the House Financial Services Committee and sent to the floor of the House for a vote. However, the full House did not take up the bill last year.

There are therefore high expectations for the early approval of H.R. 940 by the Financial Services Committee. This process began on March 11 with a hearing before the Capital Markets Subcommittee, which is chaired by Congressman Garrett. There was strong bi-partisan support for the bill, although several Subcommittee members showed through their questions that they are still trying to understand the mechanics of covered bonds and the role they might play in housing finance.