On October 20, 2015, the European Commission published its report to the European Parliament and Council on the capital requirements for covered bonds as incorporated in the Capital Requirements Regulation. Under CRR, for banks investing in covered bonds that meet certain criteria, preferential risk weight is applied. The Commission is required to report on the appropriateness of: (i) the preferential risk weights taking into account types of cover assets, level of transparency on the cover pool and the impact of the covered bond issuance on the issuer’s unsecured creditors; (ii) extending the preferential risk weights to covered bonds secured by certain aircraft loans; (iii) including covered bonds guaranteed by residential loans as eligible assets; (iv) the derogation for covered bonds backed by securitization instruments; and (v) the derogation for covered bonds backed by other covered bonds. The Commission considers the European Banking Authority’s recommendations on the EU covered bond framework published in 2014 and sets out where it agrees with those recommendations and its proposed steps to implement them, including consulting with stakeholders on proposed changes to the legislative requirements. The Commission’s recent consultation on the EU’s covered bond framework under the Capital Markets Union initiative is also relevant and will impact on how the capital treatment for covered bonds is revised.
The Commission’s Report is available at: http://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=COM:2015:509:FIN&from=EN and the EBA’s Report is available at: https://www.eba.europa.eu/documents/10180/534414/EBA+Report+on+EU+Covered+Bond+Frameworks+and+Capital +Treatment.pdf.