Regulatory Legislative and Legal

Several amendments to H.R. 5823 — the latest version of covered bond legislation in Congress — were added to the bill during the markup session of the House Financial Services Committee (HFSC) before the HSFC voted to report the bill to the House floor.

• A four-page amendment from Rep. Melissa Bean (D-IL) provides for a system of joint regulation by a variety of entities instead of oversight by a single regulator.

To download a PDF of the Bean amendment, click on "20100728 bean" under "Attachments," below.

This useful fourteen-page report from the Congressional Research Service was written by Edward V. Murphy, a specialist in financial economics.  Here is the table of contents:

Definitions

Policy Issues

"Skin in the Game" and Underwriting

Transparency and Investor Confidence

Capital Requirements and Lending Volume

Maturity Mismatch

July 22, 2010 saw the introduction of a new version of proposed covered bond legislation — H.R. 5823 — to supersede a previous version (H.R. 4884) with the same title, the "United States Covered Bond Act of 2010."  While similar in many ways to the previous version, H.R. 5823 also presents some significant differences.

To download a PDF (31 pages) of the full text of the new bill, click on "H.R. 5823" under "Attachment," below.

The final shape of the financial services reform bill — a compromise between versions previously passed separately by the U.S. House of Representatives and the Senate — will be determined by a House-Senate conference committee comprised of members from both chambers.  On June 22, the House conferees voted to include covered bond provisions as part of the compromise version they would like the Senate side to agree with.

Canadian covered bonds are the topic of a reference article by John Mackle in Westlaw Business titled "Covered Bonds: Canadians Do Debt in Europe" (May 26). The article's premise is that with recent Canadian covered bond issues raising billions, "the legal nuances of the covered bond will soon be a topic for discussion in many boardrooms."

In April, Toronto-Dominion (TD) announced that it was joining other prominent Canadian banks in establishing a covered bond program.  TD's prospectus (April 26) describes the program in detail, including a graphic of its structure. 

Michael Durrer, lead partner on Sidley Austin LLP's covered bond team, is a member of the influential U.S. Covered Bond Council.  The law firm justifiably describes itself as a "pioneer" in the covered bond field, having "acted for the issuers in establishing the first two covered bond programs in the U.S.," as well as "representing the arrangers on the first U.K. structured covered bond program."

Morrison & Foerster (MoFo) can write with authority on the topic of covered bonds because its attorneys include Jerry Marlatt, who is credited with helping to engineer the first issuance of covered bonds in U.S. history (by Washington Mutual).  Reflecting his level of interest, Marlatt was among the few observers who personally attended a December 2009 Congressional hearing on covered bonds held by the House Financial Services Committee.

Very few U.S. lawyers actually have practice experience in the arena of covered bonds.  In that small group is Howard Goldwasser, "one of a handful of U.S. lawyers who led the development of covered bond programs for issuers based in Canada, Mexico and Brazil and to have introduced them to the U.S. capital markets."

This Q&A discussion of the United States Covered Bond Act of 2010 from the Goodwin Procter law firm addresses questions including: "What covered bonds would be subject to the Act?" "What happens on default and insolvency, conservatorship or receivership?"  "What assets are eligible for a covered bond program under the Act?"