250th anniversary of the Pfandbrief: Interview with Christian Bonnen

Christian Bonnen Member of the Board of Managing Directors, Kreissparkasse Köln

What role does the Pfandbrief play in the funding strategy at your bank?

The Pfandbrief has been a funding instrument at Kreissparkasse Köln since as long ago as 2003. As a traditional credit institution with a large portion of real estate loans, it was a logical step to give the Pfandbrief a firm place in our funding mix. Our aim in doing so was, and is, to ensure that we have a funding basis that is as independent as possible from market developments. Besides customer deposits, therefore, the Pfandbrief is our main source of funding. The importance we at Kreissparkasse Köln attach to the Pfandbrief is also borne out by our membership in the Association of German Pfandbrief Banks (vdp).

After 250 years, the Pfandbrief does not seem to have lost any of its appeal. What do you consider to be its main selling point?

In my view, the Pfandbrief’s most important characteristic is its reliability. For the issuer it is a reliable funding source, and for the investor it is a reliable investment – underpinned by a legal framework, constant quality checks by the cover pool monitor and monitoring by the German supervisory authorities. Never in the history of the German Pfandbrief has there been a single case of default. This fact is also acknowledged in European legislation, with the Capital Requirements Regulation (CRR) providing for privileged treatment for Pfandbriefe with regard to capital backing.

Do you think that the harmonization of covered bonds in Europe jeopardizes the Pfandbrief’s benchmark position?

Generally speaking, the fact that a European framework sets minimum standards for the quality of European covered bonds is an advantage. At the same time, it was good and right that a principles-based solution was found instead of striving for complete harmonization. In this way, certain national quality criteria remain untouched and continue to provide stimulus in the sense of a role model. One factor behind this is that responsibility for checking for compliance with the legal framework continues to rest with the national supervisory authorities, who are familiar with the particularities of the national markets.

The expansionary monetary policy has had a strong impact on the Pfandbrief market in the last ten years, with both positive and negative effects. How do you assess the current situation?

Although the ECB is gradually scaling back its asset purchase program and only wants to reinvest maturities, it nevertheless still holds a substantial volume that also includes a large share of the Pfandbrief market. However, fears that traditional investor groups could be permanently crowded out as a result have failed to materialize. On the contrary: many have returned to the markets in the meantime, as the strong sales figures for 2019 show. Thus, the ECB’s gradual withdrawal from its expansionary monetary policy is slowly leading to a normalization, at least in the Pfandbrief market.