Regulators must pay increasing attention to debt encumbrance, where holders of asset-backed securities or covered bonds have rights to certain pools of collateral, according to Thomas Huertas, alternate chairman of the European Banking Authority.
Huertas was speaking at the Global ABS 2011 conference in Brussels today.
“Supervisors need to pay increasing attention to asset encumbrance.”
“There is a limit how far collateralization can go, without significantly raising the risk to deposits and other senior obligations of the bank.”
“There is some evidence that some investors treat covered bonds as if they were senior to unsecured bonds.”