German Covered Bonds: Overview and Risk Analysis of Pfandbriefe (SpringerBriefs in Finance)

The Pfandbrief, a mostly triple-A rated German bank debenture, has become the blueprint of many covered bond models in Europe and beyond. The Pfandbrief is collateralized by long-term assets such as property mortgages or public sector loans as stipulated in the Pfandbrief Act. With a history that goes back to the 18th century and a high market share in today’s covered bond markets, the German Pfandbrief is the most established covered bond. Until today, no single Pfandbrief has ever defaulted. Even though Pfandbriefe have survived the financial crisis comparably unharmed, investors have become more sensitive regarding the creditworthiness of the corresponding issuer and sovereign, the strength of the legal (or contractual) framework and the quality of the cover pool serving as collateral. This monograph provides a structured in-depth analysis of the legal framework and the risks inherent in a Pfandbrief, taking into consideration recent market developments. Starting from the legal framework, the German Pfandbrief is introduced without requiring prior knowledge. Covered bond related risks are explained in detail and their relevance to the Pfandbrief is thoroughly discussed with focus on the two most common Pfandbrief types, mortgage and public Pfandbriefe. In addition to that, the monograph comes with an extensive collection of Pfandbrief-related literature and a glossary explaining the main technical terms. Preface 5 Acknowledgments 7 Contents 8 1 German Covered Bonds 9 1 Introduction 9 2 Legal Framework 11 2.1 Legislative Materials 11 2.2 Pfandbrief Issuance 12 2.3 Preferential Claim 14 2.4 Cover Register 14 2.5 Eligibility Criteria 14 2.6 Refinancing Register 18 2.7 Mortgage Lending Value 18 2.8 Cover Requirements 20 2.9 Supervision 21 2.10 Risk Management Requirements 23 2.11 Transparency 23 2.12 Issuer Insolvency 24 3 The Pfandbrief Market 27 4 Risk Analysis 37 4.1 Issuer Risks 38 4.2 Cover Pool Risks 45 4.3 Risk of Timely Pfandbrief Repayment 56 4.4 Structural and Legal Risks 57 4.5 Other Risks 63 4.6 Risk Mitigation 67 5 Resume 71 References 73 Glossary 82 Front Matter....Pages i-ix German Covered Bonds....Pages 1-73 Back Matter....Pages 75-82