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“NSFR Would Have Potential Constraining Impact on Covered Bond Markets”


11 May 2016


Euro & Finance
Trade & Society

The European Mortgage Federation- European Covered Bond Council (EMF-ECBC) cautions that the current Net Stable Funding Ratio (NSFR) proposal from the Basel Committee on Banking Supervision (BCBS) would unduly restrict the covered bond market and, as a result, long-term financing.

The EMF-ECBC expresses its views in an updated version of its July 2015 Paper on the BCBS’s proposed NSFR Standard, which it has today submitted to the European Commission and the European Banking Authority (EBA). The Paper has been updated notably to take account of the recommendations of the EBA in its December 2015 Report on the NSFR.

In its latest Paper, the EMF-ECBC recalls that covered bonds played a pivotal role in bank wholesale funding during the recent financial turmoil as one of the only asset classes able to restore investor confidence and ensure access to debt capital markets for European issuers.

With this in mind, the EMF-ECBC advocates in particular the setting of Required Stable Funding (RSF) and Available Stable Funding (ASF) to zero for interdependent assets and liabilities, including all situations where a matching principle exists in law.

In structures where there are no interdependent assets and liabilities, the EMF-ECBC highlights:

(i)     the potential for derogation from the NSFR on an individual institution basis where the institution is part of a group/sub group;

(ii)    the adjustment upwards of ASF factors for covered bonds with a residual maturity of less than one year;

(iii)   the need for identical treatment of mortgages in terms of RSF weighting, regardless of whether they are funded through covered bonds or not; and

(iv)  the recognition of the secured nature of the asset in the assignment of RSF factors to swap agreements on covered bonds.

Finally, from an investor perspective, the EMF-ECBC welcomes the fact that extremely high liquidity and quality as well as high liquidity and quality covered bonds are assigned RSF factors in line with their categorisation under the European Commission’s Delegated Act on the Liquidity Coverage Requirement1. However, the EMF-ECBC asserts that covered bonds backed by cover pools with high credit quality should not be treated differently in the NSFR because of differences in issue size so as to ensure that covered bonds issued from the same prime cover pools fulfil the same stable funding requirements.

In commenting on the EU implementation of the BCBS NSFR Standard, Luca Bertalot, EMF-ECBC Secretary General, stated:

“The tailored and proportionate EU implementation of the Basel III framework is vital for the viability of the mortgage and covered bond industries, all the more so in light of the advent of yet more regulatory change in the form of “Basel IV”. Appropriate liquidity and capital requirements will be determinant for the role the Industry can play in supporting not only growth, but also in meeting the EU’s energy targets.”

The updated EMF-ECBC Paper on NSFR is available here.




Luca Bertalot

Secretary General

Tel: +32 2 285 40 35


Notes to the Editor:

1.     Established in 1967, the European Mortgage Federation (EMF) is the voice of the European mortgage industry, representing the interests of mortgage lenders and covered bond issuers at European level. The EMF provides data and information on European mortgage markets, which were worth over 6.9 trillion EUR at the end of 2014. As of May 2016, the EMF has 19 members across 14 EU Member States as well as a number of observer members.


2.     In 2004 the EMF founded the European Covered Bond Council (ECBC), a platform bringing together covered bond issuers, analysts, investment bankers, rating agencies and a wide range of interested stakeholders. As of May 2016, the ECBC has over 100 members across 26 active covered bond jurisdictions and many different market segments. ECBC members represent over 95% of covered bonds outstanding, which were worth over 2.5 trillion EUR in total at the end of 2014.


3.     In June 2014, the EMF and the ECBC came together to form the Covered Bond & Mortgage Council (CBMC), which replaced the European Mortgage Federation as the legal name under which both entities operate, although in practice, both the EMF and ECBC brands are maintained and used to identify the two areas of focus within the CBMC’s scope.


4.     The Covered Bond Label Foundation (CBLF) was established in 2012 by the EMF-ECBC. The Covered Bond Label website became fully operational on the 1st of January 2013, with the first Labels being effective since then. As of May 2016, the website features 14 National Transparency Templates, 77 issuer profiles and information on 91 labelled cover pools. The Covered Bond Label website currently provides issuance data on over 4,200 covered bonds, amounting to a total face value of over 1.4 trillion EUR, out of which over 2,000 covered bonds already include information on the Liquidity Coverage Requirement (LCR).


5.     For the latest updates from the EMF-ECBC, follow us on Twitter, LinkedIn and YouTube or visit the EMF-ECBC blog.