FRIC research changes EU banking regulation

Covered bonds are considered assets of extremely high liquidity in the final EU Capital Requirement Directive draft  (CRD IV). This is a new way of considering covered bonds and research by FRIC member Jens Dick-Nielsen and coauthors has been cited as the key argument for changing the status for Danish covered bonds in CRD IV.

The new status for covered bonds follows a recent report by the European Banking Authorities (EBA). It is the EBA who will eventually decide on the exact definitions of highly liquid assets eligible for use in the calculation of the Liquidity Coverage Ratio (LCR).

The EBA report primarily cites the paper by Dick-Nielsen, Gyntelberg and Sangill (2012), when talking about covered bond liquidity and the potential methodology for how to assess the liquidity of other European covered bond markets as well.

At the moment, only Danish covered bonds fulfill the requirements for being extremely liquid. The extended definition of assets with extremely high liquidity to include covered bonds will therefore benefit both Danish financial institutions and the Danish mortgage bond market as a whole.

For more information, see the paper by Dick-Nielsen, Gyntelberg and Sangill (2012) and the media coverage in the links below.