By Ralf Werner, Manuela Spangler
The Pfandbrief, a generally triple-A rated German financial institution debenture, has develop into the blueprint of many lined bond versions in Europe and past. The Pfandbrief is collateralized by way of long term resources comparable to estate mortgages or public area loans as stipulated within the Pfandbrief Act.
With a historical past that is going again to the 18th century and a excessive marketplace proportion in today’s lined bond markets, the German Pfandbrief is the main demonstrated coated bond. until eventually at the present time, no unmarried Pfandbrief has ever defaulted.
Even although Pfandbriefe have survived the monetary drawback comparably unhurt, traders became extra delicate in regards to the creditworthiness of the corresponding supplier and sovereign, the power of the criminal (or contractual) framework and the standard of the canopy pool serving as collateral.
This monograph offers a established in-depth research of the felony framework and the dangers inherent in a Pfandbrief, bearing in mind fresh industry advancements. ranging from the criminal framework, the German Pfandbrief is brought with no requiring past wisdom. coated bond similar dangers are defined intimately and their relevance to the Pfandbrief is carefully mentioned with specialize in the 2 commonest Pfandbrief kinds, personal loan and public Pfandbriefe. as well as that, the monograph comes with an intensive number of Pfandbrief-related literature and a thesaurus explaining the most technical terms.
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Extra info for German Covered Bonds: Overview and Risk Analysis of Pfandbriefe
The issuer may generally have less highquality assets or be forced to use good quality cover pool assets for other purposes and replace them by lower quality assets. In addition to that, he might not be willing or able any more to replace bad performing assets in the cover pool which still fulfil the eligibility criteria. In this context, the issuer’s business model also plays an important role, as it defines the assets generally available for inclusion in cover. The PfandBG mitigates substitution risk by eligibility criteria and monitoring requirements: only high quality assets are cover pool eligible, and the cover pool monitor has to give his consent to the deregistration of cover pool assets and derivatives.
To judge substitution risk appropriately, detailed information on (planned changes in) the business strategy, as well as on cover and non-cover assets, is needed. The availability of this information is, however, limited and often only available with a certain time lag (see Sect. 4). An issuer’s commitment to his business strategy and his Pfandbrief program (see Sect. 2) might provide some ease in this context. Maintenance of Overcollateralization Overcollateralization acts as a buffer against cover pool risks and is an important form of credit enhancement.
Since end of February 2013 (Q4 2012 reporting), vdp member banks apply these standards on a voluntary basis, on top of the normal cover pool reporting (vdp 2013b, p. 4). Maturity-independent haircuts are applied to the nominal value of public sector claims from European countries where the corresponding central state has a non-investment grade rating. e. lower ratings get 30 In other jurisdictions, loan-to-value limits can be up to 80 %, and the quality of the property valuation also varies (Volk 2011a).
German Covered Bonds: Overview and Risk Analysis of Pfandbriefe by Ralf Werner, Manuela Spangler