Thursday, October 02, 2008

Covered bonds

Covered bonds explained

Covered bonds are secured on a pool of mortgages but crucially also carry a guarantee from the issuing bank to protect investors if the mortgages turn bad. In the UK, this guarantee counts as a senior unsecured liability that should rank equally with other senior unsecured debt. Meanwhile, shareholders emphasised that the bank was solvent and that they should see some residual value.

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