A Guide to Global Covered Bond Legislation

Bank of America Merrill Lynch

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Date Published January 2012
Primary Author Anne Caris, Caspar Cook, Alexander Batchvarov
Other Authors
Theme Legal Framework for Housing Finance


Understanding legal frameworks is the first step in analysing covered bonds, and in this report we take a look at the legislation in 15 countries. The frameworks define a number of key principles, in particular: clarity of bankruptcy remoteness, eligible assets for the cover pools (eg, type, loan-to-values), management parameters on credit and asset-and-liability risks, supervision, oversight of cover assets, reporting requirements, process in the event of issuer insolvency, capabilities and rights post-insolvency. As such, legislation determines the minimum quality of the security available to covered bondholders. Issuers can decide to go beyond the minimum legal parameters, but we believe this is only of any value for bondholders if it is done on a contractual basis.

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