July 28, 2008
Statement of Comptroller of the Currency John C. Dugan On Covered Bonds
WASHINGTON — Comptroller of the Currency John C. Dugan made the following statement today at a press conference on mortgage finance sponsored by the Department of Treasury:
Covered bonds represent an important new source of funding for the U.S. mortgage industry. I’d like to commend both Secretary Paulson and FDIC Chairman Bair for the leadership they’ve shown on this initiative.
At a time when millions of Americans are finding it more difficult or more expensive to get mortgage credit, we need to use every tool at our disposal to supply additional liquidity to the mortgage industry. Covered bonds can not only help provide that liquidity, they can do so in a safe and sound manner.
For the banking system, covered bonds provide a new source of funding that is both more stable than unsecured borrowing and potentially less expensive. Since the collateral remains on the bank’s balance sheet, the issuer has the flexibility to substitute collateral as needed. And because the bank retains the credit risk, it has a strong incentive to maintain prudent underwriting standards.
The FDIC took an important step forward earlier this month when the board approved a policy statement that clarifies how these bonds will be treated in a bank failure. And Treasury took another major step today by providing a standardized model and best practices that should promote consistency in the development of the U.S. market, without the need for legislation. We, at the OCC, are ready to do our part as well.
The FDIC Policy Statement applies only to covered bond issuances made with the consent of the insured depository institution’s primary federal regulator, such as the OCC. We expect national banks to show us how their programs will comply with the FDIC Policy Statement. We will review their proposed programs under our supervisory no-objection process, a standard way of evaluating certain activities as part of our on-going supervisory role.
I’m pleased to see representatives from four national banks here today, at the forefront of this new market. Covered bonds have been used to good purpose for some time in Europe. I am confident they will have the same success here in the United States.