Italy might be closer than ever to issuing a covered bond, said panelists at the covered bond panel the ongoing Global ABS conference being held in Cannes.
However, the country is a bit of anomaly since it is the only European jurisdiction with an established covered bond framework that has not actively pursued opportunities in the sector despite the fact that the framework has been around for three years and Italian mortgages have a strong reputation among investors and market participants.
Part of the delay has been in the legislative process, panelists said. They noted that that it took the Italian treasury one year to set out what assets could be eligible for the covered pool and two years for the Bank of Italy to get out the additional rules to complete the covered bonds legislation.
"Its the case now where only a few Italian issues are actually eligible to issue," said Dario Longo, a partner at Linklaters and a speaker at the same panel. "Mid-size banks are excluded because you have to have to meet minimal capital requirements but it's only the case in Italy, other jurisdictions with a statutory framework do not have these provisions in their covered bond legislations."
Longo said that only a handful of players would be eligible to issue under the structured legislation and the legislation only allows a limited amount of assets it can post as collateral.
"We want to protect investors but we don't want to force banks to divulge all of their best credit to the dismay of creditors," Longo said. "There are still doubts and concerns about how this market will function but non have to do with the protection of investors. Instead its the banks that don't understand what impact these issues will have on the issuer."