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Irish ‘Pfandbrief’ market proposed by mortgage lenders Back  
Bond issuance by banks based in Ireland could extend beyond Irish mortgages
to Irish and international public infrastructure.
The Department of Finance is to consider proposals from the Irish Bankers’ Federation and the Irish Mortgage and Savings Association to create a ‘Pfandbrief’ market in Ireland.

A report by Dr Ronan O’Connor of UCD Business School on the potential for such a market was finalised last November. The IBF and IMSA have come together on foot of O’Connor’s report and one by Dr Peter Bacon on the topic. A steering committee between the two organisations has been set up, chaired by Enda Twomey of the IBF, with McCann FitzGerald as legal advisers and Dr Ronan O’Connor as economic consultant. The proposal was also made briefly in IBEC’s pre-budget submission last November.

A ‘Pfandbrief’ market would involve the issuance of bonds backed by mortgages, and possibly also public project financings. Legislation would have to be changed so that the relevant assets backing the mortgages would be exempted from bankruptcy and insolvency provisions and would not be available to creditors other than the mortgage bond holders. Similar legislation is in place in France, Luxembourg, Netherlands, Spain, Denmark and Finland. Luxembourg passed its Mortgage Bank Act in 1997.

In a statement, the Department of Finance said that it ‘looks forward to receiving the proposals from the lobby group over the coming months’.

Mortgage issuers in Germany are able to raise funds at close to Euribor on account of the Pfandbrief (which are rated as AAA debt) whereas the cheapest funding of mortgages through conventional securitisation for Irish mortgage lenders is about Euribor plus 25 basis points.

The development of the market could make available more long-term fixed rate funding for mortgage customers.

The margin pressure on Irish mortgage lenders from new market entrants has increased the interest in more efficient capital raising.

The move is also seen as offering an attractive source of new long term, high quality bonds for pension fund investors.

The report by O’Connor pointed out that the domestic Irish new mortgage market would allow for bond issuance of about ?2 to ?3 billion per annum, which was not very large internationally. The same legislative change would allow international public sector bond issuance by IFSC banks, for example, and this could give rise to about ?10 - ?15 billion of new issuance per year.

The change would bring Ireland into line with other European countries, where public sector and mortgage bond issuance is commonplace. The issue was raised at a recent meeting of the IFSC Banking and Treasury sub-committee, and a number of participants were asked to study the issue and revert with comments.

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