ECB underplays sovereign risk to covered bonds

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By Bill Thornhill
20 Apr 2020

A recent European Central Bank working paper may have underestimated the part a sovereign’s credit plays in the covered bond’s credit risk. But this relationship plays a very important role, a Moody’s analyst said on Monday, referring to a report by the agency assessing how the pandemic will affect covered bond credit quality.

The ECB’s working paper looked into the various factors that influence the risk profile of covered bonds.

It proposed a set of five indicators that capture the major risks associated with the asset class: issuer risk, collateral, cover pool risk, mismatches between covered bonds and the underlying assets, and the ...

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