Pfandbrief

Pfandbriefe are interest-bearing covered bonds issued on the capital market by credit institutions on the basis of the German Pfandbrief Act (Pfandbriefgesetz, PfandBG). A licence to carry out Pfandbrief business is required (Pfandbrief banks).


"Pfandbriefe are a prime example of finance at the service of people’s well-being.“
Jean-Claude Trichet, ehem. EZB-Präsident, 2011

The Pfandbrief is used by credit institutions to fund certain loans – secured by security rights over real property, ship mortgages, or aircraft mortgages – as well as to fund claims against public sector entities. Depending on the type of collateral involved, it is called a Mortgage Pfandbrief, a Ship Pfandbrief, an Aircraft Pfandbrief, or a Public Pfandbrief. Pfandbriefe are usually issued as bearer bonds, though sometimes also as registered bonds.

Europe’s leading covered bond

Pfandbriefe are a classic funding instrument employed by Pfandbrief banks and constitute one of the largest segments of the European bond market. In addition to its high level of security, standardisation, and transparency, it is above all the Pfandbrief’s spotless credit history that has permanently secured its reputation among investors and on Germany’s financial markets.
 
Particularly during times of crisis, it has repeatedly proved to be a reliable funding instrument, and it is now a firmly established element in the funding mix of banks. This has prompted other countries to create similar products in line with the covered-bond principle. But even though at the European level they are subsumed under the term “covered bonds”, Pfandbriefe differ significantly in terms of their structure and their quality characteristics, namely in their statutory bases, the rules for determining the mortgage lending value, and governmental supervision. In the spectrum of European covered bonds, they continue to be considered the benchmark because of their quality characteristics. The German Pfandbrief is highly trusted by investors, as can be seen from its stable performance compared with other covered bonds during the 2008 financial crisis 

Pfandbrief: stable performance during the financial crisis

Covered Bond Spreads over the course of the crisis, Source: LBBW Research