Rep. Scott Garrett (R-NJ) offered an covered bonds amendment that goes a long way to creating a more comprehensive legislative framework for covered bonds in the U.S.
This amendment mirrors the legislation Garrett and Rep. Paul Kanjorski (D-PA-11) introduced earlier this year, the Equal Treatment for Covered Bonds Act, which aims to help facilitate a robust covered bonds market in the U.S. The aim was to add liquidity and certainty to the nation's housing market.
In prepared remarks for the introduction of his amendment, Garrett said that because of the current problems with the secondary mortgage market and the lack of liquidity for securitization , the government must continue to look for new and innovative ways to provide increased funding for the credit markets.
During the summer of 2008 or a month before the financial crisis began to set in, there was an attempt by the administration to get the covered bonds market off the ground.
The Treasury Department issued a list of best practices that described the most prudent ways for interested issuers to offer covered bonds. Also, the Federal Deposit Insurance Corp. (FDIC) published a final policy statement that provided guidance to investors as to what access the FDIC would offer to the collateral in case of a bank failure.
To date, there have only been two issuances of covered bonds in the U.S., by Bank of America and Washington Mutual, which is now a part of JPMorgan.
“Over the last several months however, there has been a tremendous increase in demand by investors for these bonds,” Garrett said. “In one week in September alone, there were seven new issuances in a variety of different European countries that totaled over $20 billion. So, at a time when we desperately need more private investment and additional liquidity in our credit markets, I believe we must work to set up a system that will allow covered bonds to flourish and their full promise to be explored.”
