Garrett to Senate: Please Include Covered Bonds in Reg. Reform

The announcement below was released May 7 by the office of Rep. Scott Garrett, who introduced the United States Covered Bond Act of 2010 in the House of Representatives (March 18).

(Washington, DC) - Rep. Scott Garrett (R-NJ) is asking Senate leaders to consider the inclusion of legislative language that would create a statutory framework for a U.S. covered bond market in S. 3217, the "Restoring American Financial Stability Act."

In a letter to Senate Banking Committee Chairman Christopher Dodd and Ranking Member Richard Shelby, Garrett said, "As our nation continues to recover from the recent financial crisis and certain credit markets remain locked, Congress must examine new and innovative ways to encourage increasing private capital and investment to return to our capital markets.  We must also consider creative means to enable the private sector to provide funding for additional consumer credit and alternative options for financial institutions to finance their operations.  Establishing a U.S. covered bond market would further each of these shared policy goals."

The letter is cosigned by Financial Services Committee Ranking Member Spencer Bachus (R-AL).

The text of the letter is included below.

May 7, 2010

[Addresses omitted]

Dear Chairman Dodd and Ranking Member Shelby:

We are writing to respectfully request the inclusion of legislative language in S. 3217, the "Restoring American Financial Stability Act," to create a statutory framework for a U.S. covered bond market.

As our nation continues to recover from the recent financial crisis and certain credit markets remain locked, Congress must examine new and innovative ways to encourage increasing private capital and investment to return to our capital markets.  We must also consider creative means to enable the private sector to provide funding for additional consumer credit and alternative options for financial institutions to finance their operations.  Establishing a U.S. covered bond market would further each of these shared policy goals.

On March 18, 2010, we introduced H.R. 4884, the U.S. Covered Bond Act.  This legislation would establish a comprehensive framework for a U.S. covered bond market.  The legislation specifically would:

• Create a covered bond regulator within the Department of Treasury;
• Define the eligible asset classes to be included in the "cover pool";
• Establish eligibility criteria for issuers interested in offering covered bonds;
• Detail the process of transferring the covered assets to a separate estate in the event of an issuer insolvency; and
• Appoint an administrator to oversee and manage the separate estate.

A robust U.S. covered bond market would provide a significant source of much-needed liquidity for home mortgages, commercial real estate (including multi-family), student loans, and public sector financing.  This additional source of liquidity would benefit consumers and businesses in the form of increased access to credit at more affordable rates.

It is our understanding that Senator Charles Schumer (D-NY) and Senator Bob Corker (R-TN) are working on drafting similar covered bond legislative language to be considered for inclusion in the Senate financial regulatory reform bill.  We applaud their efforts and urge all Members on both sides of the aisle to support this commonsense and productive bipartisan proposal.

Sincerely,

Spencer Bachus

Ranking Member

House Financial Services Committee 

Scott Garrett

Ranking Member

House Financial Services Committee Subcommittee on Capital Markets

cc: The Honorable Charles Schumer

      The Honorable Bob Corker

To download a PDF of the original letter above, click on "Garrett 20100507" under "Attachment," below.