By Mercy Jiménez
American Banker today (Dec. 11) published a “Viewpoint” commentary I wrote on Congressman Scott Garrett’s (R-NJ) groundbreaking proposal for covered bond legislation in the U.S.
This legislation could open up the way for diversified sources of funding for banks as well as a partial solution for the Fed’s exit strategy on its $1 trillion MBS holdings. We are at a crossroads in the U.S., where we must make a proactive decision to attract private capital back into the mortgage markets— or else remain in limbo dependency on government subsidies for the foreseeable future.
A hearing has been scheduled for next Tuesday at 10 AM in which the merits of Congressman Garrett’s proposal will be discussed. If enacted, the proposed legislation would include game changers we have so desperately needed in this space to attract issuers and investors alike — i.e., legal structures for bondholder protections, standards for cover pools, and the role of Treasury as regulator.
Of particular interest are the proposed asset classes beyond real estate loans, because the amendment would open the way for covered bonds secured by student loans, auto loans, credit card receivables and small business loans.
All of us, of any political persuasion, should take interest in this supplemental funding source, which has proved resilient over the past 200 years — and even more so during the current financial crisis.
The link to my American Banker commentary is below. (If you are not a subscriber, it is easy to get a free two-week online subscription that will allow you to view the full text.)
http://www.americanbanker.com/issues/174_237/covered-bond-proposal-1005024-1.html