France challenges Pfandbriefe with new covered bond

Author: | Published: 9 Nov 2010

The new French banking act includes a framework for a novel type of covered bond. It’s been designed with market consultation, and could rival the German Pfandbriefe model.

French banks have traditionally been reluctant to use securitisation to finance property loans, with loans usually kept on the originator’s balance sheet. But new Basel requirements and reduced equity financing means banks are no longer in a position to lend extensively to the housing sector.

Passed on October 22, the loi de régulation bancaire et financière includes broad reforms to the French system, including measures to encourage smaller banks into the securitisation market. At the same time they’ll be able to shore up their balance sheets and refinance mortgage loans...