Pfandbrief Act and vdp celebrate their 20th year

It was 20 years ago, on 19 July 2005, that the German Pfandbrief Act (PfandBG) came into force. On that same day, the VDH (the Association of German Mortgage Banks) was renamed the vdp (Association of German Pfandbrief Banks). So it is that in 2025 we celebrate both the 20th anniversary of the Pfandbrief Act and the vdp’s 20th birthday.

The Pfandbrief Act is based on the German Mortgage Bank Act (HBG) for private issuers. A new legal framework for the issuance of Pfandbriefe by public-sector institutions became necessary in 2005 when the Public Pfandbrief Act (ÖPG) was repealed due to the abolition of the liability mechanisms “Anstaltslast” and “Gewährträgerhaftung”. The VDH and its member banks developed a uniform Pfandbrief Act that also took into account the regulations of the Ship Pfandbrief Bank Act, which had been in force until then. This Pfandbrief Act enables all banks to issue Pfandbriefe provided they meet the stringent provisions of the Pfandbrief Act and have received the necessary licence from the Federal Financial Supervisory Authority (BaFin). “The Pfandbrief Act provides a strict regulatory framework for the issuance of Pfandbriefe and so guarantees the high level of security and quality of the Pfandbrief as a refinancing instrument. The key factor has always been the systematic focus on investor protection paired with the high innovative strength of its issuers,” the vdp’s President Gero Bergmann pointed out.

The Pfandbrief Act has undergone continuous development over the past 20 years. To date, 24 amendments have been made since its implementation. Most of these have been of a technical nature or have served to ensure the functioning of existing regulations. On the other hand, some aspects of the cover pool administrator’s activities have also been improved, and rules on the liquidity reserve have been introduced. A milestone in the history of the Pfandbrief Act was the implementation, in 2019, of the EU Commission’s Covered Bond Directive. The CBD was designed to establish greater harmonization of the quality features of European covered bonds on which their privileged regulatory status is based. We were pleased to note the CBD was modelled closely on the Pfandbrief Act.

The Pfandbrief Act also facilitates innovation. For example, the first ESG Pfandbrief was issued in 2014, followed by the launch of the first green Pfandbrief one year later. The social Pfandbrief made its debut in 2018, and 2024 saw the arrival of the blockchain-based Pfandbrief on the market. Thus, the Pfandbrief Act has paved the way for sustainable issues in times of climate change.

Under the Pfandbrief Act, the Pfandbrief could in future make an even greater contribution as a refinancing instrument than it has done so far. It has the potential to help overcome socio-political challenges such as the acute housing shortage in Germany by raising the mortgage lending limit. Over and above that, the Pfandbrief is ready to assume a greater role in the growing investment in infrastructure and sustainable transformation.

It is important, therefore, that legislators and supervisory authorities focus on Pfandbrief Act amendments that are geared to optimizing use of the Pfandbrief for issuers while at the same time ensuring its high quality standards. Only then can the success story of the Pfandbrief continue.