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Monday, July 28, 2008

Paulson on Covered Bonds

by Calculated Risk on 7/28/2008 02:43:00 PM

From MarketWatch: Four big banks to kick-start covered bond market

Appearing alongside Treasury Secretary Henry Paulson, representatives of the four largest U.S. banks agreed Monday to kick-start a market for covered bonds - an alternative way to provide mortgage loans - in the United States.
Under the practice, a bank borrows funds to lend to homeowners and holds the mortgages on its books. It uses the proceeds of the mortgages to repay investors.
Covered bonds are considered more secure than mortgage-backed securities (MBSs) because the purchasers of the bonds have a direct claim on the issuer's balance sheet.
I'm not very familiar with covered bonds, but reports suggest they are - or were - widely used in Europe. (italics added)