New banks are likely to be established solely to issue on-balance sheet mortgage bonds, if a proposal for Pfandbrief-type issuance from the Irish Bankers’ Federation and Irish Mortgage and Savings Association is implemented.
Pfandbrief issuers would have to meet criteria relating to ‘qualifying activities’ to be permitted to issue the new bonds. It is envisaged that some institutions will create separate subsidiaries with loan portfolios heavily in mortgages and public sector debt, designed to meet the qualifying activities.
Mortgage lenders and public sector lending banks, such as some IFSC banks, may meet the qualifying criteria without creating a separate subsidiary.
The substance of proposed legislation to allow for the issuance of ‘Pfandbrief’ bonds by banks in the Republic was delivered to the Department of Finance in early June by the Irish Bankers’ Federation and the Irish Mortgage and Savings Association.
The IBF/IMSA has had discussions also with the Central Bank, the NTMA and the Irish Stock Exchange on the new mortgage bond issue and described their attitudes as ‘supportive’.
Since the idea was first floated, 24 banking and mortgage institutions have taken part in, and funded, the project to develop this new type of bond issuance. Ronan Molony, Roy Parker and Hilary Coveney of McCann Fitzgerald have worked on the legal aspects while Dr Ronan O’Connor and Claire O’Connor of O’Connor and Associates act as economic consultants. Enda Twomey chairs the project committee of the IBF/IMSA.
The interested institutions include domestic Irish mortgage lenders, IFSC banks and investment banks, who would distribute the new bonds.
The IBF/IMSA is hoping that a bill including provisions to permit Pfandbrief bonds could be published in the autumn and enacted by the end of the year. However, the legislative pressure at the Department of Finance is understood to be quite heavy already, including the bill to establish the national reserve pension fund.
Aspects of the draft Pfandbrief legislation, which would be a first in a common law jurisdiction, deal with the creation of the role of a ‘Cover Asset Monitor’, an entity or person who would be responsible, among other matters, for monitoring the obligations of the bond issuer to replace maturing mortgages and other assets with permitted loans. The Central Bank would set out qualifications for whom or which type of entity could hold the position.
The type of elegible public sector assets would be specified in legislation also. The IBF/IMSA proposal would be to allow public sector debt initially from countries in the European Economic Area (the EU, plus Norway, Iceland and Liechtenstein). This would be slightly more conservative than the Luxembourg law in the area, which permitted assets from all OECD countries. |
