Client Alert

The Rise of Covered Bonds?

July 24, 2008

Erica Berg and Kevin Petrasic

On July 15, 2008, in the wake of the failure of Indymac Bank one of the largest bank failures in history and a mounting cloud of uncertainty enveloping the banking industry, the Federal Deposit Insurance Corporation (FDIC) issued its Final Covered Bond Policy Statement (Final Policy Statement). In a move many view as an effort by the FDIC to bolster the mortgage market and provide banks with a new liquidity tool (and funding alternative to the struggling securitization market), the Final Policy Statement may open the way to a U.S. market in covered bonds. Though covered bonds have existed and flourished in European markets, a U.S. market for these bonds has faced regulatory uncertainty making depository institutions hesitant to participate. The Final Policy Statement alleviates some of these concerns in an attempt to invite more players to the market.

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