Bernanke, Ben

To date, not many covered bonds have been issued in the United States, for several reasons.  First, the Federal Home Loan Banks (FHLB) can tap capital markets and provide cost-effective funding for mortgage assets.  In addition, as a source of financing, covered bond issuance today is not generally competitive with FHLB advances.  Second, Fannie Mae and Freddie Mac have traditionally securitized U.S. prime mortgage assets.  The GSEs' implicit government backing and their scale of securitization operations have made it difficult for banks to use covered bonds to finance their own prime mortgages.  Third, the United States does not have the extensive statutory and supervisory regulation designed to protect the interests of covered bond investors that exists in European countries.  To this end, the recent introduction of the FDIC policy statement on covered bonds and the Treasury covered bond framework were constructive steps.  Finally, the cost disadvantage of covered bonds relative to securitization through Fannie and Freddie is increased by the greater capital requirements associated with covered bond issuance.