The European Association of Co-operative Banks (EACB) welcomes the opportunity to participate in the discussion around the development of the EU framework for covered bonds. In particular, the EACB believes that cooperative banks with their networks of regional and retail banks could benefit from an approach that allows SME and household credit to continue being provided at a local level by improving wholesale market finance of those assets through improved secured funding instruments.
The EACB considers it is of utmost importance that any adopted framework maintains an appropriate level of flexibility to avoid disrupting existing covered bond structures and markets, which have already proven their efficiency. At the same time, it should be ensured that there is no emphasis on one covered bond model over the others, as one model which functions well in the specific environment of one country may not necessarily perform well in another country. In this context it should be borne in mind that these differences stem in particular from divergent legislation (in particular insolvency laws), various market conditions (different levels of significance of buy-to-let sector, state subsidies on loans for low income families etc.) and varied banking sectors (centralised banking groups, cooperative groups with regional banks). For example, the “assets on the balance-sheet” model is appropriate for centralised banks, but not for cooperative groups with regional independent banks. Consequently, favouring one model over another would undermine the overall efficiency of this refinancing instrument and imply additional costs that would compromise the financing of the real economy.
For further information on this topic or to read the EACB response, please download the PDF.