Hagan-Corker Bill introduced to create U.S. market for covered bonds

By Jennifer Chiou

New York, Nov. 9 - A new bill was introduced to help the development of the covered bond market in the United States as senators Kay R. Hagan (D-N.C.) and Bob Corker (R-Tenn.) unveiled their eponymous "United States Covered Bond Act of 2011" to create a legislative framework that expands funding options for U.S. financial institutions, according to a press release.

"Covered bonds can be another stable source of private capital in the U.S., providing additional lending to businesses and families," Corker said in the release.

Securities Industry and Financial Markets Association executive vice president, public policy and advocacy, Kenneth E. Bentsen, Jr. championed the bill: "Sifma reiterates its strong support for a dedicated U.S. covered bond legislative framework and applauds the senators for their leadership in introducing the United States Covered Bond Act in the Senate."

"Sifma believes that covered bonds are a proven source of funding that could help expand the availability of credit for households and strengthen the domestic housing market," Bentsen added in a separate release.

Senate co-sponsors Chuck Schumer (D-N.Y.) and Mike Crapo (R-Ida.) joined Hagan and Corker in introducing legislation.

"The U.S. lags behind its global peers in the development of a covered bond market because we lack a legislative framework for issuers and investors," Hagan noted in the release.

"With a legislative framework in place, U.S. financial institutions will have a powerful tool that can be used to fund loans to small businesses and households. This bill would level the playing field for U.S. financial institutions and help strengthen our U.S. economy."

The Sifma representative also emphasized the influence of the global markets.

"Foreign financial institutions have more recently ignited domestic U.S. investor interest through issuance of U.S. dollar-denominated covered bonds. U.S. financial institutions have not, however, been able to tap that same investor demand," Bentsen said.

"We believe a dedicated legislative covered bond framework will provide investors with the certainty necessary for a robust covered bond market to develop in the U.S."

Financial institutions in 30 countries, including Germany, the United Kingdom and Canada, already issue covered bonds, the release stated.

At the end of 2009, the total outstanding volume of covered bonds reached €2.4 trillion.

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