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Will Basel III spur ECAs to be more covered bond-friendly?
21 April 2011
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[us ex-Im]
[hermes]
[covered bonds]
[basel III]
Of all the export credit agencies only US Ex-Im and Germany’s Hermes provide commercial banks with a readily available means of using their agency-covered loans as assets in covered bond programmes. The agencies go to third party insurers to cover the 5% not covered by the ECA facility and then charge the premium back to the originating bank.
Other ECAs could be following suit, because international project finance banks will find their balance sheets increasingly squeezed under the proposed Basel III rules. There is little evidence that this support from the German and US agencies has fed through to pricing, at least compared to the impact of broader political and economic factors. But the pricing benefit could become more apparent in the future: ECA-covered financing, despite its quasi-sovereign nature, does not fare well under the draft regulations for bank capital calculations.
Under the first pillar of Basel 3 – the...
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