rec_9

(9) Covered bonds of credit quality step 2 should be recognised as level 2A assets subject to the same cap (40 %) and haircut (15 %) applicable to other liquid assets of this level. This can be justified on the basis of available market data which indicate that credit quality step 2 covered bonds exhibited greater liquidity than other comparable level 2A and 2B assets, such as residential mortgage-backed securities (‘RMBSs’) of credit quality step 1. Furthermore, permitting these covered bonds to qualify for the purposes of the liquidity buffer would contribute to diversifying the pool of available assets within the buffer and prevent an undue discrimination or a cliff effect between them and covered bonds of credit quality step 1. It should be noted, however, that a significant proportion of these covered bonds became credit quality step 2 as a result of the downgrade in the rating of the Member State's central government where their issuer was established. This reflected the country ceiling typically included in the methodologies of rating agencies which determines that financial instruments may not be rated over a certain level relative to their respective sovereign rating. Hence, country ceilings precluded the covered bonds issued in those Member States from reaching credit quality step 1, irrespective of their credit quality, which in turn reduced their liquidity compared with covered bonds of similar quality issued in Member States that were not downgraded. Funding markets within the Union have become greatly fragmented as a result, which highlights the need to find an appropriate alternative to external ratings as one of criteria in prudential regulation to classify the liquidity and credit risk of covered bonds and other categories of assets. In accordance with Article 39b(1) of Regulation (EU) No 1060/2009 of the European Parliament and of the Council Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (OJ L 302, 17.11.2009, p. 1). , the Commission must report by 31 December 2015 on alternative tools to credit ratings, with a view to deleting all references to credit ratings in Union law for regulatory purposes by 1 January 2020.

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Source: EUR-Lex (Cellar) · retrieved 2026-11-06 · Text as adopted (Official Journal); later amendments are not incorporated in this text.