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Part IV Liquidity Supervision and Requirements, 16 Covered Bonds and Securitization Positions as HQLA

Seraina Grünewald

From: Capital and Liquidity Requirements for European Banks (1)

Edited By: Bart P.M. Joosen, Marco Lamandini, Tobias H. Tröger

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 30 May 2024

Credit risk — Securities — Basel 3 — Capital requirement — Liquidity — Basel committee on Banking Supervision

This chapter reviews the differences in treatment of covered bond and securitisation positions with a view to calculating liquidity requirements (both the Liquidity Coverage Ratio and the Net Stable Funding Ratio) by Basel III on the one hand and the EU framework on the other. It begins by explaining the concept of high-quality liquid assets (HQLA). Covered bonds are debt obligations issued by banks and secured by a pool of cover assets to which investors have direct recourse as preferred creditors, while retaining a claim against the issuing bank in the event of default as ordinary creditors. Securitisations, on the other hand, represent transactions or schemes with an exposure or pool of exposures whose credit risk is tranched, which possess the following characteristics: (1) payments in the transaction or scheme depend on the performance of the exposure or pool of exposures; and (2) the subordination of tranches determines the distribution of losses throughout the ongoing life of the transaction or scheme. The chapter then addresses the implications of the EU’s efforts to integrate and improve the efficiency of the covered bonds market, culminating in the recent adoption of the Covered Bonds Directive and Regulation.

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