250th anniversary of the Pfandbrief: Interview with Dr. Louis Hagen
250 years of Pfandbriefe – what is the secret to their success?
The special significance of Pfandbriefe and high regard in which they are held are founded on generations of prudent and conservative regulation, combined at the same time with a willingness to remain open to further product enhancement. The success of the Pfandbrief also stems from its cultivation by issuers and their consensus with regard to the quality standards that have always been postulated by this Association, as well as from the product’s careful adaptation to evolving investor requirements. Yet its conservative ‘brand essence’ remains untouched, such as strict creditor protection. The Pfandbrief thus combines tradition with innovation and has become one of the founding pilars for Germany’s culture of long-termism. This finds its expression in, for example, housing loans with fixed-interest periods of 10, 15 or even 20 years as well as in the medium to long-term maturities of Pfandbriefe on fixed income markets.
In his preface to a collection of materials marking 100 years of the existence of the German Mortgage Bank Act (Hypothekenbankgesetz), Dieter Bellinger opined that old laws are good laws. At 14 years of age, does the German Pfandbrief Act (Pfandbriefgesetz) count as an “old” law in this sense?
The Pfandbrief Act is the direct successor of the Mortgage Bank Act of 1900 and builds on it to a significant extent. In that sense, the Pfandbrief Act is indeed also an old law. The number of issuers has virtually doubled since the Act came into force in 2005 and on the legal basis of the Act the Pfandbrief not only survived the financial crisis unscathed but emerged from it even stronger than before. These factors alone make the Pfandbrief Act a success story. The recognised high quality standards of the Act also served as a model for the Commission’s work on harmonisation of covered bonds in Europe and enable issuers to record consistently high scores in Pfandbrief ratings. One aspect in particular ensuring that the Pfandbrief Act – and the commitment to quality it enshrines – remains an “old” law is the representation of interests across all banking groups in Germany that the Act first enabled.
What have the Pfandbrief banks got planned to mark a quarter of a millennium?
We have a great deal planned. We would like to bring the product history and present-day significance of Pfandbriefe to a wider audience. The commemorative publication, published with the support of Pfandbrief banks, undoubtedly contributes to this goal. The work links together 250 years of national and financial history. In my view the publication clearly shows that on the eve of covered bond harmonisation, the Pfandbrief is still as contemporary and relevant as it was on its very first day.
What do you wish the Pfandbrief on its birthday?
I wish the Pfandbrief continued strong support from policymakers, robust and modern national supervision in dialogue with issuers, and – above all – a continued diverse universe of issuers to invigorate the market. Such issuers should include large, medium and small banks, which can be both universal and specialised banks with varying ownership structures. In this way the Pfandbrief will be ideally equipped to continue its success story into the future.