Bill to simplify covered-bonds framework
The Government has approved the drafting of legislation aimed at simplifying the framework for issuing asset-covered securities, also known as covered bonds, in Ireland.
The proposals would allow banks to issue asset-covered securities without needing, as under the current system, to set up and maintain specialist subsidiaries.
The Department of Finance says that this will simplify the framework for issuing such bonds and reduce costs.
The department says that the Asset Covered Securities (Amendment) Bill will also ensure that the framework is more accommodating for those who want to issue a programme of specifically ‘green’ securities.
Safe assets
Asset covered securities (ACSs) are highly regulated bonds issued by credit institutions that are backed by a ring-fenced pool of high-quality assets, such as mortgages or sovereign bonds.
As the pool of assets is subject to independent monitoring and must always be worth more than the securities it backs, covered bonds are considered very safe assets.
They are also seen as a cost-efficient funding instrument for banks, supporting the supply of credit to the mortgage market.
The department says that many European jurisdictions have moved away from the specialist banking model and have adopted instead a ‘universal banking model’, under which a mainstream bank can issue covered bonds directly, without the need for a specialist subsidiary.
Tánaiste and Minister for Finance Simon Harris said that the publication of the heads of the bill was in line with a Government commitment to simplify and modernise the regulatory framework “to ensure Ireland remains competitive within the EU and globally facilitating continued investment”.