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Thursday, 18th April 2024
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Pfandbrief legislation gets go ahead Back  
The Government has approved proposals for draft Pfandbrief legislation. The legislation refers to the introduction mortgage and public credit bonds into the Irish market, which are similar to the Pfandbrief already in existence in Germany.

The bill is designed to enable Irish lenders to finance their activities as efficiently as their European counterparts, and to further develop Irish capital markets.

Other European countries, notably Germany, France, Luxembourg and Denmark either have, or are in the process of introducing similar measures. According to figures compiled by the EU Commission, pfandbriefs now account for nearly 20 per cent of all euro denominated bond issuance, including sovereigns.

The bonds are a funding instrument, which will mainly be issued by banks. The bonds are secured on a pool of underlying assets held by the same banking entity. The assets remain on the bank’s balance sheet and are kept in a secure register monitored by independent trustees. Certain unique features of the instrument - the high quality of the assets underlying them, the reciprocal recognition by other issuing centres of their high credit standing and the preferential creditor status afforded to investors in the bonds mean that they are designed to achieve a triple A rating.

The introduction of the euro and the new monetary policy framework has led to the development of an integrated and competitive money market in the euro area. In this regard, mortgage bonds are now becoming a standard feature of European markets.

They are a recognised asset class in their own right and, accordingly, will be attractive to long-term institutional investors. For certain credit institutions, they offer the prospect of raising finance in a cost-effective manner and, as a consequence, they can have a substantial and beneficial impact on competitiveness.

The Irish Bankers Federation welcomed the move. ‘It is important that institutions here have access to the same range of funding mechanisms - like the Irish Covered Bond - as have been or is being legislated for across Europe.

‘The institutions here for whom this new mechanism would be most relevant include domestic mortgage lenders, IFSC banks that are involved in public sector lending and investment banks as distributors of the new bonds.’

The detailed working of the new Irish pfandbriefs will be examined at a half day workshop during the Finance Dublin conference on March 27th-28th (details on page 15 of this issue), with speakers from Commerzbank, Standard and Poors, the ISE, the chief consultant to the Irish prandbrief project, Ronan O’Connor of the Smurfit Business School, and Enda Twomey, pfandbrief committee chairman of the IBF.

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