Investment grade covered bonds should have LCR status

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Investment grade covered bonds should have LCR status

The covered bond industry looks set to achieve its aim of having highly rated bonds counted as Level 1 assets in the Liquidity Coverage Ratio (LCR). However, the newly drafted rules set a minimum single A rating for Level 2 assets. That will mean peripheral banks are unable to use many of their domestic covered bonds for liquidity purposes. They will therefore be forced to increase their sovereign risk.

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