EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 14 June 2010  
on amendments to the Law on covered bonds ( Pfandbriefe ) 
(CON/2010/47) 
 
Introduction and legal basis  
On 6 April 2010, the European Central Bank (ECB) r eceived a request from the German Federal Ministry 
of Finance for an opinion on a draft law on the impl ementation of the amended Directive 2006/48/EC of 
the European Parliament and of the Council of 14 J une 2006 relating to the taking up and pursuit of the 
business of credit institutions (recast)1 (hereinafter referred to as the ‘Banking Directive’) and of the 
amended Directive 2006/49/EC of the European Par liament and of the Council of 14 June 2006 on the 
capital adequacy of investment firms and credit institutions (recast)2 (hereinafter the ‘Capital Adequacy 
Directive’) (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, fi fth and sixth indents of Article 2(1) of Council 
Decision 98/415/EC of 29 June 1998 on the consulta tion of the European Central Bank by national 
authorities regarding draft legislative provisions3, as the draft law relates to the Deutsche Bundesbank, to 
payment and settlement systems and to rules applicable to financial institutions insofar as they materially 
influence the stability of financial institutions and markets. In accordance with  the first sentence of 
Article 17.5 of the Rules of Procedure of the Eur opean Central Bank, the Governing Council has adopted 
this opinion. 
 1.  Purpose of the draft law 
The draft law is principally aimed at implementi ng the amendments to the Banking Directive and the 
Capital Adequacy Directive
4, as well as Directive 2009/44/EC5. Independently of this, the draft law 
                                                 
1  OJ L 177, 30.6.2006, p. 1. 
2  OJ L 177, 30.6.2006, p. 201. 
3  OJ L 189, 3.7.1998, p. 42.  
4  Concerning uniform principles for th e recognition of hybrid capital elements as core capital, regulations for 
securitisations and re-securitisations and more stringent requ irements for disclosure, a change in the large exposures 
regime for better inclusion of concentration risks and a strengthening of cooperation betw een the national supervisory 
authorities in the European Economic Area. 
5  Directive 2009/44/EC of the European Parliament and of the Council of 6 May 2009 am ending Directive 98/26/EC on 
settlement finality in payment and s ecurities settlement systems and Dir ective 2002/47/EC on financial collateral 
arrangements as regard s linked systems and credit claims (OJ L 146, 10.6.2009, p. 37). 
 
2 updates the Law on covered bonds ( Pfandbriefe ) in three main respects. First, it aims to strengthen the 
legal status of cover pools (and the Pfandbrief liabilities attaching to them with top priority) as 
organisations in their own right – distinct from the insolvent estate of a bank dealing in covered bonds (Pfandbrief  bank). Second, it seeks to clarify the superv isory status of cover pools as licensed banks, 
since they may have activities requiring a licence. Thir d, it further strengthens the powers of cover pool 
administrators ( Sachwalter ) who may take all actions necessary to ensure the proper servicing of 
outstanding Pfandbriefe – including entering into transactions for obtaining additional liquidity for this 
purpose.  
The cover pools ( Deckungsmasse ) for the Pfandbriefe consist of loans and securities fulfilling statutory 
requirements, entered in a special register, for the so le purpose of safeguarding the liquidation of issued 
Pfandbriefe . Legally, cover pools do not form part of the insolvent estate of the Pfandbrief  bank. Cover 
pool assets are thus kept separate from the insolvent estate and from other cover pools.  
A fundamental review of the legislation on Pfandbriefe  was undertaken in 2004, introducing the role of 
the cover pool administrator who, upon appointment on a proposal of the Fede ral Financial Supervisory 
Authority ( BaFin ) must either (i) seek a sale of the cover pool, or (ii) secure the ongoing existence of the 
cover pool as a stand alone body for the purpose of properly servicing outstanding Pfandbriefe . For the 
latter situation, cover pool administrators were give n wide-ranging powers to represent the pool and were 
mandated by law to take any action necessary to  ensure the servicing of the – unaltered – Pfandbriefe . 
The legal entity carrying the c over pool was (and still is) the Pfandbrief bank.  
Under the draft law, the cover pools will assume the legal nature of a ‘ Pfandbrief  bank with limited 
business activities’. In order to fully satisfy Pfandbrief creditors, as set out in the draft law, cover pool 
administrators shall represent their Pfandbrief  bank with limited business activities (i.e. the cover pool) 
and their powers shall be clarified to enable them to take out loans and, exceptionally, also issue bonds 
for funding purposes, in particular to offset temporary shortfalls in liquidity. Cover pool administrators 
may issue these bonds as Pfandbriefe . Similarly, under the draft law, existing banking licences will 
continue in force with regard to the Pfandbrief banks with limited business ac tivities. According to the 
explanatory memorandum, the continuation of a Pfandbrief  bank is justified as long as the cover pools of 
the individual Pfandbriefe have the necessary assets, which is assumed to be the case due to the special 
protective mechanisms of the Law on Pfandbriefe . Only if the solvency of a Pfandbrief bank with limited 
business activities becomes doubtful will the supervisor y authority be empowered to also revoke the 
licence of the Pfandbrief  bank with limited business activities. 
Finally, the draft law clarifies that the assets of a Pfandbrief  bank held with Eurosystem central banks for 
the purpose of fulfilling the minimum reserve obliga tions, to the extent the latter are related to Pfandbrief 
liabilities, do not form part of the insolvent estate but belong to the Pfandbrief  bank with limited business 
activities.  
 
 
3 2. General observations  
2.1 The ECB welcomes the draft law, as it provid es for a procedure for insolvent banks to make 
appropriate separate settlements of German Pfandbriefe outside the scope of insolvency provisions 
and enables the cover pool administrator to en sure the complete settlement of outstanding 
Pfandbriefe . 
2.2 The ECB welcomes that the third and fourth sentences of Section 30 (1) of the draft law regulate 
the continued existence of Pfandbrief  banks and their purposes. The ECB notes that the draft law 
implicitly states that the activities of cover pool ad ministrators, as well as the licence for the cover 
pool, will expire as soon as the servicing of outstanding Pfandbriefe is completed. However, given 
the option of issuing new Pfandbriefe, the ECB recommends further clarifying this.  
2.3 The ECB stresses that it is entirely within th e competence of the Eurosystem to decide what 
collateral and which counterparties to accept for the purposes of its monetary policy operations and 
intraday credit and to set criteria for participation in payment and clearing systems. National law cannot determine the eligibility of certain entitie s as monetary policy counterparties of the 
Eurosystem or the eligibility of certain assets as collateral within the mone tary policy framework of 
the Eurosystem. The ECB notes that the draft law does not contain any explicit reference indicating 
that the administrator of an insolvent Pfandbrief  bank’s cover pool can obtain liquidity from the 
Eurosystem. However, the ECB would nevertheless  recommend that this point is clarified and 
would welcome it if the explanatory memorandum were  to reaffirm that it is for the Eurosystem 
alone to decide the eligibility criteria for counterparties and assets. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 14 June 2010. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET