EU's Covered-Bond Market Stance Seen as `Good News' for Denmark

  • Hill says his aim isn't to have `one harmonized framework'
  • Speech in Brussels seen as positive for Danish mortgage firms

Jonathan Hill, the European Union commissioner in charge of financial-services policy, said he’s not pursuing a single rule book for the covered bond market. That’s music to the ears of Denmark’s mortgage industry.

“My aim is not for covered bond prices to be the same across Europe or to have one harmonized framework,” Hill said in in a speech in Brussels on Monday. “I want to build on national covered bond markets that work well. My goal is to see whether the experience, expertise and best practice that countries like Germany, Denmark or France have built up over the years can be used to create a more integrated market.”

Ane Arnth Jensen, head of the Association of Danish Mortgage Banks, said Hill’s speech was “rather good news” for the market in that country. Hill’s proposals on a “pan-European framework” for the securities met with resistance from established markets in the EU. Sweden’s financial regulator said last month that any effort to enforce a single rule book across the bloc was likely to result in legal chaos.

Denmark and Germany, the world’s largest covered bond markets, have warned against sacrificing the strict regulations that govern their industries to create a single market. Easing requirements would risk undermining investor confidence in secured debt, which emerged unscathed from the financial crisis. Banks holding the bonds get favorable capital treatment.

‘Always a Risk’

“In processes like these -- and we’re not done yet, we’re only at the beginning -- there’s always a risk,” Jensen said of the EU’s review of covered-bond market rules. “The risk isn’t removed yet, but it is a good beginning,” he said. “It’s not a one-size-fits-all, one-mode-fits-all approach.”

Karsten Beltoft, head of the Danish Mortgage Banks’ Federation, said Hill’s speech was “promising” for the direction of EU policy.

“Harmonization in itself is fine as long as the goal is not one single covered bond system in EU,” Beltoft said. “Hill made clear that that wasn’t the aim of the consultation.”

Hill’s comments may put him out of step with the European Central Bank, the biggest investor in covered bonds, which last week threw its support behind efforts to standardize the market. In its response to Hill’s request for comments, the ECB said that “harmonization of the covered bond market in the EU is warranted” as part of efforts to develop capital markets across the bloc.

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