EN ECB -PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 23 December  2013  
on covered bonds  
(CON/201 3/94) 
 
Introduction and legal basis  
On 2  Decem ber 201 3, the European Central Bank (ECB) received a request from Banca Naţională a 
României (BNR) for an opinion on a draft law on covered bonds  (hereinafter the ‘draft law’). 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third and sixth indents of Article  2(1) of Council Decision 
98/415/EC of 29  June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions1, as the draft law relates to BNR  and to rules applicable to the 
financial institutions insofar as they materially infl uence the stability of financial institutions and markets. 
In accordance with the first sentence of Article  17.5 of the Rules of Procedure of the European Central 
Bank, the Governing Council has adopted this opinion.  
 
1. Purpose of the draft law 
1.1 The purpo se of the draft law is to set up a legal framework for the issuance of covered bonds by 
credit institutions that is in line with best European practices and to foster the development of the 
domestic capital market  
1.2 The draft law defines: (a) the institu tions allowed to issue covered bonds, i.e. banks and mortgage 
banks  that are Romanian legal entities , and BNR’s authorisation procedure s concerning issuers and 
issues  of covered bonds ; (b) the types of assets eligible for inclusion in the cover pool of cov ered 
bonds, i.e. mortgage loans, substitution assets and hedging derivatives,  and the valuation and 
composition of the cover pool; (c) the structure of the cover pool , where  issuers must  ensure  the 
quality of the cover pool  during the entire lifetime of th e bonds by replacing, if necessary, assets 
that no longer meet the eligibility criteria; (d) the r ules regarding  issuance  and supervision of 
covered bonds and manag ement of  the cover pool ; (e) the covered bond holders’ rights ; (f) special 
provisions  in cas e of an issuer’s bankruptcy; (g) transparency requirements . 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
ECB -PUBLIC  
2 1.3 The draft law establishes a set of rules to protect covered bond  holders’ rights. In particular, they  
have  the right to satisfy their claims against the issuer  by having priority as regards recourse to t he 
cover pool and n o other creditor of the issuer, regardless of the nature of its claim, may initiate a 
foreclosure on the entire cover pool or on a part of it prior to  the covered bond  holders . Such  
protection becomes particularly r elevant in the event of  a bankruptcy  procedure with respect to 
covered bond issuer s. Until and unless all  the issuer’s obligations towards the covered bond  holders  
have been fulfilled , the cover pool securing the covered bonds will not form  part of the issuer’s 
estate undergoing a liquidation procedure  and will not be affected by such a procedure.  Moreover , 
the servicing of the cover pool continues during and after completion of bankruptcy proceedings 
until all claims in the cover pool  have been realised . The draft la w also provides the possibility to 
accelerate the fulfilment of the issuer’s obligations towards the covered bond  holders by assign ing 
the claims in the cover pool to a third party, with the bond  holders’ prior consent.  In such a case, to 
the extent the proceeds of the assignment are  insufficient to satisfy in full the claims of the covered 
bond holders , they also have recourse to the issuer’s estate  for the remainder of the claim , ranking 
pari passu  with unsecured creditors.  
1.4 Following  the entry into fo rce of the draft law, BNR is to adopt additional  regulations for its 
implementation , inter alia , on: (a) the conditions regarding authorisation for the issuance of 
covered bonds; (b) the categories, eligibility criteria and maximum limits applicable to  substitution  
assets; (c) the ratio between the  total value of covered assets and the total value of the issuer’s 
assets; (d) the methodology used when assessing and managing the liquidity risk of covered bonds; 
(e) the methodology used when  determining the weighted averages of maturities of covered bonds 
and claims securing the covered assets; (f) the rules regarding the internal cover register; and (g) the 
rules regarding quarterly reports to fulfil the transparency requirements . 
1.5 When the covered bond iss ue is carried out  by subscription in a public offer, this has to take place  
on the basis of a prospectus approved by the Financial Supervisory Authority, as the competent 
authority of the home Member State, in accordance with Law No 297/2004 on the capital  market2 
and Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 
2003/71/EC of the European Parliament and of the Council3. 
 
2. General o bservations  
2.1 The draft law aims  to enhance legal certainty with regard to  the legislative framework on covered 
bonds  in Romania . A number of provision s in the  draft law are targeted  at ensuring the protection of 
bond  holders, which may allow banks to issue covered bonds  that comp ly with Directive 
                                                 
2  Published in Monitorul Oficial al României , Part I No 571/2004 . 
3  Commission Regulation (EC) No 809/2004 of 29 A pril 2004 implementing Directive 2003/71/EC of the European 
Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by 
reference and publication of such prospectuses and dissemination of advertise ments  (OJ L 149, 30.4.2004, p. 1).  
ECB -PUBLIC  
3 2009/65/EC of the European Parliament and of the C ouncil4 and with Directive 2006/48/EC of the 
European Parliament and of the Council5. Covered bonds play an important role in  Union financial 
markets ; therefore it is  importan t to have sound legal rules in  place,  particular ly with regard to  
financial stabi lity.  
2.2 In order to preserv e the financial situation of banks and the quality of their assets, t he ECB 
welcomes the provision stating that  BNR may require an issuer to provide own funds at a level 
higher than that provided for under  Regulation (EU) No 5 75/2013 of the European Parliament and 
of the Council  if the ratio between the total cover assets and the total assets of the issuer exceeds the 
one established by BNR.   
2.3 Article 9(1)  of the draft law states that the net present value of the cover pool has to exceed the net 
present value of the liabilities assumed through one covered bond issue  with a certain 
collateralisation percentage . Article 8 regulates a structure based on  a single cover pool, which may 
secure various issues of covered bonds . Therefore, the above -mentioned provision may better  refer 
to the aggregate value of all the issues plus the amount corresponding to the collateralisation  
percentage  applicable to each of them , rather than to a single issue . 
2.3 Article 9(2) of the draft law set s out a tool for monitoring and managing liquidity risk of the cover 
pool, by requiring the issuer to cover the largest difference between the cash flows generated by 
claims in the cover pool and the maturing covered bonds  with liquid substitution assets , as 
determined on a daily basis for a  180-day period . The draft law should clarify  from what date and 
how this 180 -day period is to be calculated  and whether  it is intended to actually refer to 
consecutive periods of 180 days.  
 
This opinion will be publishe d on the ECB’s website.  
 
Done at Frankfurt am Main, 23 December  2013 . 
[signed]  
The President of the ECB  
Mario DRAGHI  
                                                 
4  Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, 
regulations and administrative provisions relating to undertakings for collective investment in transferab le securities 
(UCITS) (OJ L 302, 17.11.2009, p. 32).  
5  Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit 
of the business of credit institutions (OJ L 177 , 30.6.2006, p. 1). After 1  January 2014 , this directive w ill be replaced by a 
new framework, established  by Directive (EU) 2013/36  of the European Parliament and of the Council of 26 June 2013 
on access to the activity of credit institutions and the prudential supervision of credit ins titutions and investment firms, 
amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338)  and 
Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential  requirements 
for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1) .