Guidelines For Bank Bonds

From CNN:

On Monday, Treasury Secretary Henry Paulson laid out guidelines for banks seeking to issue so-called covered bonds as a way to finance home mortgages. Four big U.S. lenders – Citi (C, Fortune 500), Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) – said they support the venture, though none said they have plans to issue the bonds right now.

By issuing covered bonds, a bank borrows money from investors, using assets on its balance sheet – such as home mortgage loans – as collateral. The efforts of the big banks would "kick-start" the market’s development, he added.

Banks in Europe have used covered bonds as a primary source of mortgage finance for many years, and the market is worth more than $3 trillion.

Together, the firms hold or guarantee some $5 trillion of mortgages and mortgage securities.

For investors, one potentially appealing aspect of covered bonds lies in their structure. Because the bonds are backed by a specific pool of mortgages or other loans, investors in the bonds issued by a failed bank wouldn’t find themselves in line with other general creditors. For banks, covered bonds could offer a new way to raise funds for mortgage finance, now that the securitization model is faltering.

Moreover, Monday’s moves didn’t change the fundamentals of the U.S. housing market. 

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (, he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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