As mentioned last week, lobbying by the covered bond market driven by Denmark was beginning to make progress. It now appears their efforts have worked, at least in part. Denmark's economic ministry have announced that banks will be allowed to hold up to 70% of their liquidity buffers in covered bonds at 93% of their market value. This is a big step up from the original 40% and 85% of market value in the current plan. There will be additional criteria for individual transactions such as deal size and credit rating that will have to be met in order to qualify for the improved ranking but these are expected to be relatively benign.
These new rules are still to be approved by the European Commission. Assuming a smooth path to approval, this development is a shot in the arm to the Covered Bond market and removes a significant hurdle to the further development and growth of the sector.
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