Unicredit: "U.S. Covered Bond Act Introduced - a Giant Leap"

Analysts at Unicredit, a major European financial institution, have pronounced the U.S. Covered Bond Act of 2010 (USCBA) — introduced in Congress March 18 by Rep. Scott Garrett (R-NJ) — to be "a very promising step in the direction of a new U.S. covered bond market."

Franz Rudolf and Florian Hillenbrand take an interesting approach: they analyze the proposed legislation in terms of compliance with Europe's Undertakings for Collective Investment in Transferable Securities (UCITS). JP Morgan describes the UCITS as "a stamp of EU-wide regulatory approval" that "is increasingly being recognized worldwide as the mark of a stable, well-regulated investment product."

The analysts conclude that many of the UCITS's critical requirements are fulfilled.  The exception they note is the requirement that a covered bond must be issued by a bank.  Their concern on that point is that the USCBA appears to leave open the possibility of issuance by bank-sponsored Special Purpose Vehicles (SPVs) — "a structure we would heavily oppose."

Overall, however, Rudolf and Hillenbrand applaud the USCBA as "a major achievement."  They end with a cheerful "Way to go!"

The USCBA analysis, extracted for download below (with permission), originally appeared in the March 25, 2010 edition of Unicredit's Covered Bond and Agency Monitor.

To download a PDF of "U.S. Covered Bond Act Introduced - a Giant Leap" (four pages plus the Monitor's final page), click on "Unicredit 20100325" under "Attachment," below.