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The European Banking Authority (EBA) was asked
by the bloc's executive European Commission for advice on how to
treat covered bonds in new EU bank capital rules.
Covered bonds are debt backed by pools of home or commercial
property loans, and 90 percent of the global market is based in
Europe, especially in Denmark, Germany, Spain, France and
Sweden.
"The EBA is of the opinion that the preferential risk-weight
treatment that certain covered bonds received across the EU in
accordance with the Capital Requirements Regulation is
appropriate," the pan-EU banking watchdog said in a statement on
Tuesday.
"But it advises to strengthen the framework by introducing
further qualifying criteria for their preferential treatment."
The EU executive will now decide whether to put EBA's
recommendations into law that would probably take effect by
around late 2015.
Currently, covered bonds have a very low risk weighting of 10
percent, meaning the amount of capital that must be held against
them in case of default is minimal.
(Reporting by Huw Jones, editing by Steve Slater)
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