Covered bonds in the European Union : harmonisation of legal frameworks and market behaviours : executive summary

Covered bonds constitute one of the largest asset classes in Europe and represent an important source of stable, long-term funding for key banking functions such as mortgages and public infrastructure loans. Exceptionally, this asset class has no record of default during its 250 year history in Europe. Even during the peak of the global financial crisis and euro area sovereign debt crisis, covered bonds performed remarkably well and issuance remained strong. The covered bond market was not entirely immune to the effects of the crisis, however, since secondary market spreads widened and liquidity worsened from September 2008 onwards, generating concern over asset encumbrance. This, together with the Capital Markets Union (CMU) project, prompted the Commission to consider the possibility of introducing a dedicated EU legislative framework for covered bonds. Against this backdrop, this study aims to provide the Commission with the necessary evidence and analysis to inform its future policy. Specifically, the study: - Assesses the functioning and performance of the European covered bonds market to identify improvements deliverable through EU intervention without harming the market. - Assesses the costs and benefits of potential EU action (in the form of a dedicated legislative framework for covered bonds) against a "no EU policy action" scenario, i.e. a baseline scenario involving no EU intervention, but considering market developments such as the covered bonds label.