Resource Items: basics

"There are currently around EUR 870 billion of privately placed covered bonds, roughly the same volume as for benchmark covered bonds [i.e., issuances of at least €1 billion each, which are typically sold at public auction].  However, private placements are sometimes overlooked in analysis and statistical reports on the covered bond market, despite being the dominant type of issuance in several countries [including Germany]."

"The introduction of a covered bond market into Australia during the current market conditions would help to diversify funding sources leading to a greater degree of financial stability.  It is not surprising, therefore, that covered bonds are currently being considered by Treasury as a potential source of funding for Authorised Deposit-taking Institutions."

Yes, we know—there are already dozens of charts floating around that compare/contrast the key features of covered bonds with ABS/MBS.  The most frequently cited differences for covered bonds relate to dynamic cover pools, dual recourse, reduced prepayment risks, and on-balance sheet obligations.

“With the current financial crisis, the success of the covered bond market in Europe, and the support of the government’s financial leaders, it is increasingly possible that a covered bond market will emerge to complement the current securitization model in the United States.  It is reminiscent of the emergence of the securitization model during the savings and loan crisis of the 1980s.”