Rep. Garrett Introduces "United States Covered Bond Act"
Bill supersedes previous proposals for covered bond legislation
03/18/2010
U.S. Rep. Scott Garrett (R-NJ) today (March 18) introduced comprehensive proposed federal covered bond legislation in the form of a standalone bill: the "United States Covered Bond Act of 2010."
The bill draws extensively from (but is not identical to) the text of a legal framework for covered bonds that Rep. Garrett proposed last year as an amendment to the Financial Stability Improvement Act of 2009. At that time (Nov. 18), Rep. Garrett withdrew the amendment on the same day he offered it during a hearing of the House Financial Services Committee (HFSC) — after receiving assurances from Chairman Barney Frank (D-MA) that the committee would hold a hearing specifically to address the topic of covered bonds.
Congressman Scott GarrettThe promised HSFC hearing took place on Dec. 16, with indications of substantial bipartisan support among members of the committee in favor of the concept of covered bonds as a funding tool in the U.S. Since then, observers have been waiting for Rep. Garrett to take his next step, in hopes that passage of comprehensive legislation will help jump-start use of covered bonds to supplement other modes of financing here (such as securitization).
Here is the full text of Rep. Garrett's public announcement of the new covered bond legislation:
(Washington, DC)- Rep. Scott Garrett (R-NJ) introduced the United States Covered Bond Act today, with support from Rep. Paul E. Kanjorski (D-PA) and Financial Services Committee Ranking Member Spencer Bachus (R-AL) as leading cosponsors. This legislation aims to help facilitate a robust covered bonds market in the U.S. to add liquidity and certainty to our nation's capital markets.
"As the U.S. continues to recover from the financial crisis, it is essential that Congress examines new and innovative ways to unthaw our locked credit markets and encourage private capital to confidently re-engage by turning cash now on the sidelines into active investments in our country's future," said Garrett, Ranking Member of the House Financial Services Subcommittee on Capital Markets. "I believe that a robust U.S. covered bond market would offer numerous benefits to investors, consumers, and the broader financial sector, ensuring longer term liquidity that is more stable for U.S. credit markets."
Covered bonds have been used in Europe to help provide additional funding options for the issuing institutions and are a major source of liquidity for many European nations' mortgage markets. The Garrett-Kanjorski-Bachus legislation is a thorough framework that seeks to provide the same benefits to the U.S. market. The bill establishes regulatory oversight of covered bond programs, includes provisions for default and insolvency of covered bond issuers and subjects covered bonds to appropriate securities regulations by federal regulators.
"The collapse of Fannie [Mae] and Freddie [Mac] and the taxpayer bailout that followed underscores the critical need to promote mortgage financing alternatives that are supported by the private market," said Ranking Member Bachus. "Rep. Garrett's bill will help establish an innovative and responsible source of financing that can reduce the cost of credit for families, small businesses, and the public sector."
The United States Covered Bond Act is the legislative follow-up to Garrett's original legislation, The Equal Treatment for Covered Bonds Act, first introduced in 2008. During that same year, the Treasury Department issued a list of Best Practices which described the most prudent ways for interested issuers to offer covered bonds and the FDIC published a final policy statement that provided guidance to investors as to what access the FDIC would offer to the collateral in case of a bank failure.
"I am optimistic that there is a good chance for bipartisan agreement on this issue. Once members understand how a covered bonds marketplace works and the benefits that it can offer homeowners, I believe Republicans and Democrats can come together and provide the legislative framework necessary to create a robust covered bonds marketplace here in the U.S. I want to thank Chairman Kanjorski and Ranking Member Bachus for working with me closely on this important legislation."
The previous bill referred to above in Rep. Garrett's announcement — the "Equal Treatment of Covered Bonds Act of 2009" — was much more limited in scope than the new bill and did not provide for a comprehensive legislative framework.
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