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NERA experts have contributed a chapter, “Alternative Funding Sources,” to the Practising Law Institute’s Covered Bonds Handbook. In this chapter, the authors compare the economic features and recent performance of covered bonds with mortgage backed securities and Federal Home Loan Bank Advances.

The recent financial crisis was, in large measure, precipitated by the subprime crisis, and has raised concerns about securitization and the originate-to-securitize model. Depository institutions and other participants in the mortgage market are focused on alternatives to fund mortgage originations. In that context, attention has turned to covered bonds, which have been relied upon for more than two centuries in Europe to provide reliable funding. Indeed, covered bonds may become an important new source of liquidity for US financial institutions.

PLI’s Covered Bond Handbook is a comprehensive guide to these time-tested financing alternatives. The Handbook explains how covered bond transactions are structured in Canada, in European jurisdictions, and in the US; provides a comparative analysis of the jurisdictional framework; discusses the rating agency view of covered bonds; describes the many benefits associated with covered bonds; and discusses proposed US legislation designed to codify the treatment of covered bonds and provide a statutory framework for their issuance.