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Provisional agreement on harmonized framework for guaranteed bonds, reached

The Romanian Presidency of the Council and the European Parliament reached a provisional agreement on a harmonized framework for guaranteed bonds on Wednesday, reads a press release issued by the Ministry of Public Finance (MFP) on Wednesday.

This framework will specify a common definition for the receipt of a "guaranteed European bond" label and for a preferential treatment of capital requirements. The agreement is now due to be sent to the Permanent Representatives to the EU for approval.

The guaranteed bonds are financial instruments backed by a separate asset portfolio, usually mortgage or public debt, for which investors receive preferential treatment in the event of the issuer's inability to pay. These bonds are an effective source of financing for the economy, ensuring a high level of certainty for investors, says MFP.

Secured bonds are an important financing instrument in some member states, but they are still underused in other member states. Thanks to the agreement reached on Wednesday, the EU will have a framework that will provide incentives for the use of these products throughout Europe and will actively contribute to the development of the union of capital markets.

"Guaranteed bond markets are particularly well developed in Germany, Denmark, France, Spain, Italy, Luxembourg and Sweden, as national rules have long existed in these countries. In December 2015, the volume of guaranteed bonds remaining reimbursed by institutions with its headquarters in the EU, amounts to 2.1 trillion euros, accounting for 84pct of the total international volume," said Finance Minister Eugen Teodorovici.

The objective of the proposed framework (made up of a directive and a regulation), which the Commission put forward in March 2018, consists in establishing some minimum harmonization requirements that all the guaranteed bonds traded in the EU will have to meet. This will increase investor security and create new opportunities, especially where markets are less developed.

The political agreement on guaranteed bonds is now to be sent to the permanent representatives to the EU for approval. It will then be reviewed by legal-linguistic experts. Parliament and the Council will be invited to adopt the proposed regulation and directive at the first reading.  

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