Norway’s FSA Opposes EBA to Side With Denmark in Bond Dispute

Norway’s most traded covered bonds should get Europe’s top liquidity designation, according to the country’s Financial Supervisory Authority.

“Some covered bonds are significantly liquid to be considered as assets of extremely high liquidity and credit quality,” Morten Baltzersen, director general of the FSA, said Dec. 18 in an e-mailed response to questions.

The European Banking Authority plans to disregard its own findings that covered bonds are as liquid as sovereign debt and recommend the securities get a lower designation, according to Denmark’s Economy Ministry, which is opposing the proposal. If approved by the European Commission, the EBA’s recommendation would limit banks’ ability to use covered bonds to fulfill their liquidity requirements.

“The analysis conducted by the EBA shows that some markets experienced a real estate crisis during recent years which was severe enough to be considered a solid stress test for the covered bonds market,” Baltzersen said.

Norway’s smaller bond issuers, which don’t generate large volumes of the securities, “would be qualified in the category of high quality liquid assets and receive a haircut of 15 percent,” Baltzersen said.

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