European Banking Authority Recommendations For The EU Covered Bonds Framework

On December 20, 2016, the EBA published recommendations for harmonizing the EU framework for covered bonds. For banks investing in covered bonds that meet certain criteria, the CRR sets preferential risk weights to be applied. The recommendations are set out in a report which builds on the EBA's 2014 Report on EU covered bond frameworks and capital treatment. The aim of the recommendations is to ensure that only financial instruments which comply with certain harmonized structural, credit risk and prudential standards are capable of being covered bonds, and as such have access to the special regulatory and capital treatment provided. Harmonizing the EU framework on covered bonds is part of the Capital Markets Union initiative launched by the European Commission in September 2015.