Covered Bond Models in Europe – legal conflict between secured bonds and deposits regarding insolvency remoteness and bail-in

This paper discusses the functioning of the covered bonds market in Europe, focusing on the legal conflict between secured bonds and deposits regarding insolvency remoteness and bailin. Since the mid-90s and especially since 2007, there has been a tremendous revival of “Covered Bonds” in Europe, partly fostered by the financial crisis, because Covered Bonds proved to be a reliable funding source during the financial crisis. Long-term Covered bonds are complementary instruments to shorter-term deposits. Covered Bonds stabilize bank funding. Covered Bonds are not the main drivers of Asset Encumbrance, but are the Asset Encumbrance related instruments, which are the most transparent, because of the transparency provisions of many national Covered Bond laws.