RECENT REGULATORY ACTION on both sides of the Atlantic to promote covered bonds comes not a moment too soon, as

mortgage lenders in the U.K. and the U.S. struggle to find liquidity in the structured finance markets. The U.K. and the U.S. covered bond markets lag a long way behind those in continental Europe, and a major reason for this has been their lack of specific covered bonds legislation, as

well as their heavier reliance on securitization.

Typically, covered bonds legislation in continental Europe governs the type and value of assets that can be used to secure the bonds, how the pool of assets can be applied and, most importantly, provides that the covered bondholders’ claims against the pool of cover assets rank ahead of claims of other creditors and insolvency officials.

By comparison, the U.K. and the U.S., in the absence of specific legislation, have instead applied conventional structured finance techniques to create structures providing bondholder protection broadly equivalent to the ‘legislative covered bonds’ in continental Europe.

Please see full article for more information.