Opinion of the European Central Bank of 14 June 2010 on amendments to the Law on covered bonds (Pfandbriefe) (CON/2010/47)
Date: 2010-06-14
Institutions: European Central Bank
Subjects: Germany, banking supervision, bond, financial stability, national law, payment system

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) received a request from the German Federal Ministry 

of Finance for an opinion on a draft law on the implementation of the amended 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  (recast)1  (hereinafter  referred  to  as  the  ‘Banking  Directive’)  and  of  the 

amended Directive 2006/49/EC of the European Parliament 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,  fifth  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 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 European Central Bank, the Governing Council has adopted 

this opinion. 

1.  

Purpose of the draft law 

The  draft  law  is  principally  aimed  at  implementing  the  amendments  to  the  Banking  Directive  and  the 
Capital  Adequacy  Directive4,  as  well  as  Directive  2009/44/EC5.  Independently  of  this,  the  draft  law 

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OJ L 177, 30.6.2006, p. 1. 
OJ L 177, 30.6.2006, p. 201. 
OJ L 189, 3.7.1998, p. 42.  
Concerning  uniform  principles  for  the  recognition  of  hybrid  capital  elements  as  core  capital,  regulations  for 
securitisations  and  re-securitisations  and  more  stringent  requirements  for  disclosure,  a  change  in  the  large  exposures 
regime  for  better  inclusion  of  concentration  risks  and  a  strengthening  of  cooperation  between  the  national  supervisory 
authorities in the European Economic Area. 
Directive 2009/44/EC of the European Parliament and of the Council of 6 May 2009 amending Directive 98/26/EC on 
settlement  finality  in  payment  and  securities  settlement  systems  and  Directive  2002/47/EC  on  financial  collateral 
arrangements as regards linked systems and credit claims (OJ L 146, 10.6.2009, p. 37). 

 
 
 
 
                                                 
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  supervisory  status  of  cover  pools  as  licensed  banks, 

since they may have activities requiring a licence. Third, 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 sole 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 Federal 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 given 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 cover 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 activities. 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  supervisory  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 obligations, 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.  

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2. 

General observations  

2.1  The  ECB  welcomes  the  draft  law,  as  it  provides  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  ensure  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 administrators, 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  the  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  entities  as  monetary  policy  counterparties  of  the 

Eurosystem or the eligibility of certain assets as collateral within the monetary 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 

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