WASHINGTON — House lawmakers revived efforts Tuesday to help establish a U.S. covered bond market.
Rep. Scott Garrett, chairman of the House Financial Services subcommittee on capital markets and government-sponsored enterprises, reintroduced his bill to create a legislative framework for covered bonds, which advocates say is necessary for a U.S. market to grow.
"As our country recovers from the fallout of the financial crisis, it's more important now than ever before to provide the U.S. capital markets with new and innovative ways to unlock credit and encourage private sector capital to get off the sidelines," Garrett, a New Jersey Republican, said in a press release.
Rep. Carolyn Maloney, D-N.Y., a senior House Financial Services member, cosponsored the legislation. In the same press release, she said the U.S. needs "new investment vehicles that will attract investors to the securities market and increase the flow of credit."
Garrett, who has been a staunch advocate for covered bonds, has pushed for swift enactment of the legislation. While lawmakers have been preoccupied with the broader and more controversial issue of reforming the government-sponsored enterprises, Garrett wants covered bonds kept out of the GSE debate in order to achieve quicker passage.
Previously, he fought to include the covered-bond provisions in the Dodd-Frank Act. At one point, he gained the support of former Financial Services Chairman Barney Frank, who is now the full committee's ranking member. However, the measure was stopped by Senate conferees over concerns raised primarily by the Federal Deposit Insurance Corp. and Treasury Department.
Covered bonds are touted as an alternative to securitization. Unlike securitization, in which loans leave the originator and are packaged into securities sold on the secondary market, the mortgages behind covered bonds stay on a bank's balance sheet. The collateral is refreshed with new loans if the original assets stop performing.
Supporters of covered bonds cite their success in Europe as a leading argument for establishing a domestic market, and say a U.S. market would help prevent financial institutions here from suffering a competitive disadvantage to their foreign counterparts.
"With their success in Europe, covered bonds present a significant opportunity for U.S financial markets and I look forward to working to ensure their success in this country," Maloney said.
