Covered Bonds: UK Regulators Get it Right!

Excellent news coming out of London this week as both the FSA and the UK Treasury have confirmed that investors in the UK Covered Bond market should count on the fact that the collateral backing their bonds issued by UK banks will be protected even if the issuing bank goes under.

The uncertainty in each of the major structured finance markets for how local regulators will treat securitizations and other “collateralized” debt instruments in connection with a bank failure has put a wet blanket  on the global market’s recovery.  Notably, the lack of clarity from the US regulatory bodies, led by the FDIC, has cast a pale over the resurrection of that market.  Add the FDIC’s resistance to recently proposed legislation which would largely “align” a fledgling US Covered Bond Market with what most investors believe is in place in both the European and Canadian markets and this week’s announcement out of the UK would seem to add even greater distance between the US regulators and their counterparts around the world.

We applaud the UK regulators and their “confirmation” of what many investors believed was already the case.  We agree with those that have pointed out that this is exactly the type of “transparency” that the markets need and, quite frankly, deserve.

We remain baffled by how US regulators, who for more than 30 years set the standard for a progressive framework for the global securitization markets, can continue to get it all so wrong.

About markferraris
Managing Principal Orchard Street Partners LLC

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