Opinion of the European Central Bank of 23 December 2013 on covered bonds (CON/2013/94)
Date: 2013-12-23
Institutions: European Central Bank
Subjects: Romania, bond, credit institution, financial stability, issue of securities, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 23 December 2013  

on covered bonds 

(CON/2013/94) 

Introduction and legal basis 

On  2  December  2013,  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 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 

1.1  The purpose 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 institutions allowed to issue covered bonds, i.e. banks and mortgage 

banks that are Romanian legal entities, and BNR’s authorisation procedures concerning issuers and 

issues of covered bonds; (b) the types of assets eligible for inclusion in the cover pool of covered 

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 the bonds by replacing, if necessary, assets 

that  no  longer  meet  the  eligibility  criteria;  (d)  the  rules  regarding  issuance  and  supervision  of 

covered bonds and management of the cover pool; (e) the covered bond holders’ rights; (f) special 

provisions in case of an issuer’s bankruptcy; (g) transparency requirements. 

1  

OJ L 189, 3.7.1998, p. 42. 

 
 
 
 
                                                 
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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 the 

cover pool and no 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  relevant  in  the  event  of  a  bankruptcy  procedure  with  respect  to 

covered bond issuers. 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 law also provides the possibility to 

accelerate the fulfilment of the issuer’s obligations towards the covered bond holders by assigning 

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  force  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 issue 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 observations 

2.1  The draft law aims to enhance legal certainty with regard to the legislative framework on covered 

bonds in Romania. A number of provisions in the draft law are targeted at ensuring the protection of 

bond  holders,  which  may  allow  banks  to  issue  covered  bonds  that  comply  with  Directive 

2  
3  

Published in Monitorul Oficial al României, Part I No 571/2004. 
Commission  Regulation  (EC)  No  809/2004  of  29  April  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 advertisements (OJ L 149, 30.4.2004, p. 1). 

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2009/65/EC of the European Parliament and of the Council4 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  important  to  have  sound  legal  rules  in  place,  particularly  with  regard  to 

financial stability.  

2.2 

In  order  to  preserve  the  financial  situation  of  banks  and  the  quality  of  their  assets,  the  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 575/2013 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 sets 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 published on the ECB’s website.  

Done at Frankfurt am Main, 23 December 2013. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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5  

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  transferable  securities 
(UCITS) (OJ L 302, 17.11.2009, p. 32). 
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 will 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 institutions 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). 

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