250th anniversary of the Pfandbrief: Interview with Benoît Coeuré
In what context did you first come across the Pfandbrief?
Before joining the ECB, I spent five years managing France’s debt and cash at the Agence France Tresor, the French equivalent of the Finanzagentur Deutschland. That is when I first came across the Pfandbrief as an important building block of Europe’s fixed income market.
What is the importance of Pfandbrief and other covered bonds in monetary transmission?
Covered bonds play an important role in the monetary policy transmission process, in particular in a traditionally bank-based economy like the euro area. The covered bond purchase programme, for example, has lowered banks’ funding costs directly and thereby encouraged banks to extend more credit to firms and households at more attractive levels. It was not by chance that covered bonds were the first asset class which the Eurosystem purchased outright for monetary policy purposes in 2009. In addition, covered bonds also make up a large share of the collateral that banks use to borrow funds in Eurosystem monetary policy operations, ensuring that banks have access to central bank funding.
Do you think the harmonisation of covered bonds will become a success story?
The ECB supports efforts to create a harmonised, high-quality and transparent covered bond market in the European Union. The legislative proposal on covered bonds made by the European Commission in March 2018 is an important step in that direction, also with a view to promoting a further deepening of capital markets union. The ECB also sees merit in the proposed directive serving as a basis for new national legislation on covered bonds. Finally, the importance of private initiatives to achieve harmonisation should be also emphasised, in particular the covered bond label created by the ECBC in 2012. National differences will of course not vanish overnight, but I am confident that practices will increasingly converge across EU countries over time.
Will innovation, e.g. "use of proceeds" Pfandbrief/covered bonds, transform the market, how?
Successful innovations, if managed prudently, have always been important drivers of financial market developments. In the covered bond market, like in other market segments, I see “green” covered bonds as a promising innovation and transformation for the future, given the growing awareness among the general public that economic activities that avoid detrimental consequences for the environment should be sponsored.