US proposals for a covered bond market risk wrecking the products’ centuries-old reputation for boring stability, an industry group has warned.
European banks are selling record amounts of the bonds, which have their roots in 18th-century Prussia and are backed by pools of loans that remain on a bank’s books, unlike the toxic subprime securitisations the financial crisis made infamous.
The securities are considered ultra-safe because banks must replace dud loans and the pool is ring-fenced for the bondholders in bankruptcy.
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