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06 February 2015 Supervision Supervision label Q&A

Supervision of covered bonds issued by banks established in the Netherlands is governed by various acts and a decree. These are Financial Supervision Act (Wet op het financieel toezicht - Wft), several other acts pertaining to financial markets, the Decree of 28 November 2014 providing for amendment of the Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft) and the Decree on Conduct of Business Supervision of Financial Undertakings (Besluit gedragstoezicht financiële ondernemingen Wft). Covered bonds are bonds backed by assets which, in the event of default of the issuing bank, will be used for the principal and interest payments on the bonds. The issuing bank is obliged to provide additional assets to back the bonds if at any moment there would be inadequate cover.

Under the Decree, the Ministerial Regulation on amending the Regulation implementing the Wft (Ministeriële Regeling tot aanpassing van deUitvoeringsregeling Wft) has been issued, laying down rules regarding the manner in which a bank may demonstrate to De Nederlandsche Bank (DNB) that the covered bonds issued by the bank qualify as registered covered bonds within the meaning of the Decree.

The main conditions for registered covered bonds are as follows.

  • The bonds must be issued by a bank having its registered office in the Netherlands, and backed by assets transferred to the covered bond company, with bondholders having priority recourse to the assets, which, in the event of default of the issuing bank, will be used on a priority basis for the principal and interest payments on the covered bonds.
  • To qualify for one of the categories of registered covered bonds, the issuing bank must submit an application to DNB, containing all relevant information for DNB to assess compliance with the covered bond legislation, and a written statement by one of the bank's managing directors to the effect that the bonds comply with the covered bond legislation.
  • The issuing bank's registration application must include the extension period, type and jurisdiction of the underlying assets for the registered covered bond category concerned.
  • The issuing bank must limit itself to one type of underlying asset per registered covered bond category. The only exception concerns residential and commercial real estate, a combination of which may be used to back a registered covered bond, providing the ratio between residential and commercial real estate is fixed.
  • The issuing bank must ensure an over-collateralisation level of at least 105%, and a liquidity buffer of at least six months for principal and interest payments.
  • The issuing bank must provide for consistent and effective strategies and procedures to secure sufficient cover assets and liquid assets.
  • The issuing bank must carry out at least once every year stress tests in respect of the cover assets to determine whether the bank maintains a healthy balance sheet structure in times of financial stress.
  • The issuing bank must demonstrate at least once every quarter to DNB that the registered covered bonds comply with the minimum over-collateralisation and liquidity buffer requirements; demonstrate at least once every year that the strategies and procedures are effective; provide at least once every year the information that DNB needs to verify the healthy balance sheet ratio; and inform DNB without delay of any significant changes in the conditions for the registered covered bonds.
  • The issuing bank must provide to the registered covered bondholders at least once every quarter sufficiently detailed information about the cover assets, over-collateralisation, liquid assets and counterparties.

Register for Covered Bonds

There is a Register of Covered Bonds. DNB regularly updates this register.

Sector(s)

  • Banks