This is a bit of a well, D\’oh, moment:
Banks have increasingly turned to the bonds, considered an ultra-safe form of secured funding, because the market for straightforward securitisations is still struggling to recover from the financial crisis.
Both forms involve repackaging thousands of loans, such as mortgages, into new bonds, but unlike securitisations, the loans backing covered bonds stay on a bank’s books, even though they are ringfenced for the bondholders. But encumbering banks’ assets like this leaves less for other creditors, including depositors, warned Vicky Ford, an MEP for the UK’s Conservative party and a former securitisation banker.
“The more assets passing into covered bonds, the less assets on the balance sheet for other creditors,” she told an industry conference in Brussels on Wednesday.
A blinding insight I think you\’ll agree? The more assets that are secured the fewer are unsecured?