U.S. Sens. Kay Hagan (D-NC) and Bob Corker (R-TN) were joined by Senate co-sponsors Chuck Schumer (D-NY) and Mike Crapo (R-ID) in introducing legislation to support the development of a U.S. covered bond market. The Hagan-Corker United States Covered Bond Act of 2011 creates a legislative framework that expands funding options for U.S. financial institutions.
Sen. Schumer said, "With the housing market still struggling to recover, covered bonds are a common sense solution that can help bring private capital back into the housing market. Developing a U.S. covered bond market will also allow more U.S. investors to put their money to work supporting the American economy, rather than investing in covered bonds elsewhere, which they are doing now."
In June, similar legislation introduced by Reps. Scott Garrett (R-NJ) and Carolyn Maloney (D-NY) passed out of the House Financial Services Committee with wide bi-partisan support.
"The U.S. lags behind its global peers in the development of a covered bond market because we lack a legislative framework for issuers and investors," said Sen. Hagan, a member of the Senate Banking Committee. "With a legislative framework in place, U.S. financial institutions will have a powerful tool that can be used to fund loans to small businesses and households. This bill would level the playing field for U.S. financial institutions and help strengthen our U.S. economy."
Covered bonds provide U.S. financial institutions an important new tool for achieving stable, long-term financing from private capital markets. Financial institutions in 30 countries—including Germany, the UK, and Canada—already issue covered bonds. At the end of 2009, the total outstanding volume of covered bonds reached €2.4 trillion and this year foreign banks have issued $32 billion of covered bond to U.S. dollar investors. The funding that covered bonds provide would allow U.S. financial institutions to provide stable long-term credit to consumers, small businesses, and governments.
"Covered bonds can be another stable source of private capital in the U.S., providing additional lending to businesses and families," said Sen. Corker, also a member of the Senate Banking Committee and co-sponsor of the United States Covered Bond Act of 2011. "Our legislation has bi-partisan support in both the House and the Senate, and I hope we will have the opportunity to advance it in order to benefit our financial system and ultimately the broader economy."