Economic Conditions, Monetary Policy and Capital Market Integration in the Euro Area : What is the Role of Covered Bonds?

The paper examines the development of structured finance, and complementary role of covered bond and securitization markets, in resolving current policy challenges in the euro area, especially in the area of monetary easing and greater integration of capital markets. It reviews the considerations for including covered bonds in the ECB's asset purchase program and illustrates the importance of covered bonds as an alternative source of long-term finance. Further developing structured finance, especially for lending to SMEs, could help remove impediments to credit supply by overcoming the adverse effects of financial fragmentation, improving the allocation and pricing of liquidity, and supporting cross-border investment within the euro area