Opinion of the European Central Bank of 5 April 2012 on Belgian covered bonds and on measures to facilitate the mobilisation of credit claims (CON/2012/28)

OPINION OF THE EUROPEAN CENTRAL BANK of 5 April 2012 on Belgian covered bonds and on measures to facilitate the mobilisation of credit claims (CON/2012/28) Introduction and legal basis

On 14 February 2012, the European Central Bank (ECB) received a request from the Nationale Bank van België/Banque Nationale de Belgique (NBB), acting on behalf of the Belgian Ministry of Finance, for an opinion on three pieces of draft legislation (hereinafter together the ‘draft legislation’) comprising: (1) a draft law establishing a legal framework for Belgian covered bonds (hereinafter the ‘draft law on Belgian covered bonds’); (2) a draft royal decree on the issuance of Belgian covered bonds by Belgian credit institutions (hereinafter the ‘draft royal decree’); and (3) a draft law on various measures to facilitate the mobilisation of claims in the financial sector (hereinafter the ‘draft law on mobilisation of credit claims’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third, fifth and sixth indents of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft legislation contains provisions concerning the NBB, payment and settlement systems, as well as rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft legislation

1.1 The draft legislation aims to set up a comprehensive legal framework in Belgian law to allow for the issuance of covered bonds that comply with European legislation , in order to facilitate the refinancing of credit institutions, whilst defining appropriate legal mechanisms to protect the holders of these new debt instruments .

1.2 The draft law on Belgian covered bonds defines: (a) the institutions allowed to issue Belgian covered bonds, i.e. all credit institutions incorporated in Belgium and the additional authorisation requirements to carry out such activity ; (b) the types of assets eligible for inclusion in the cover pool of Belgian covered bonds , as well as the rules governing the valuation and composition of the cover pool; (c) the nature of the cover pool as a separate pool of assets of the issuer, segregated from its general, assets but without separate legal personality and remaining on the issuer’s balance sheet and set aside exclusively for the reimbursement of the holders of Belgian covered bonds ; and (d) the regime for managing that separate pool of assets, the conditions for appointing a portfolio manager and their powers . Furthermore, the draft law on Belgian covered bonds addresses the consequences of the opening of an insolvency procedure with respect to the covered bonds issuer , notably with regard to the rights of the covered bond holders and their preferential treatment. In the event of the issuer’s insolvency, the covered bond holders are to have a claim to the proceeds of the realisation of the cover pool assets in priority to all creditors of the issuing credit institution, whether secured or unsecured . Further provisions in relation to the cover pool assets are set out in the draft royal decree . The draft royal decree also contains specific provisions concerning the register of cover pool assets, the NBB’s power to impose a limit on the volume of covered bonds that may be issued by a specific institution, and the tasks of the portfolio monitor . Finally, the draft law on the mobilisation of credit claims addresses some technical legal issues in order to make it possible, in practice, to mobilise a sufficient volume of credit claims .

2. General observations

2.1 The ECB welcomes the draft legislation, as it will enable credit institutions to issue covered bonds that are attractive to a wide range of investors and expand their ability to use credit claims as collateral, thereby enhancing access to sources of refinancing by credit institutions.

2.2 The draft law on covered bonds provides that credit institutions may pledge their own covered bonds (i.e. covered bonds that they have issued themselves) as collateral for the intraday credit and monetary policy credit operations of the NBB, in accordance with the procedures and conditions determined by the NBB . The draft law further provides that a credit institution may maintain minimum reserves for each separate pool of assets with the NBB . 2.3 The ECB emphasises that it lies within the Eurosystem’s exclusive competence to decide what collateral and which counterparties to accept for its monetary policy operations, as well as to determine how minimum reserves are to be held by credit institutions with the relevant national central bank . The ECB understands that the reference in the draft legislation to the eligibility of own covered bonds as collateral is exclusively aimed at maximising legal certainty with regard to the validity of the acquisition and holding of own securities under Belgian company law . Hence, it does not appear necessary to specify the purpose for which such own covered bonds can be subscribed, acquired or held (i.e. ‘notably to pledge them as collateral in NBB credit operations’). This specification should ideally be deleted to avoid any misinterpretation regarding the exclusive nature of the Eurosystem’s competence. The ECB understands that the draft legislation does not affect the minimum reserve requirements of individual credit institutions as imposed by the Eurosystem, but solely lays down an implementation rule at the national level, allowing an individual credit institution to divide the minimum reserves it is required to hold with the NBB between different accounts . However, to fully respect the exclusive Eurosystem’s competence in this field, this provision should not be specified by the national legislator but should be left to the NBB’s discretion, subject to the requirements defined by the Eurosystem.

This opinion will be published on the ECB’s website.

Done at Frankfurt am Main, 5 April 2012.

[signed]

The President of the ECB

Mario DRAGHI