The Canada Mortgage and Housing Corporation announced the registration of two covered bond programs, with CIBC and RBC coming on board to offer the first registered programs.
“Having met the requirements of the program, CIBC and RBC are now in a position to issue the first covered bonds under the framework,” said Douglas Stewart, Interim president and CEO, CMHC. “We expect that other issuers will soon have registered programs in place.”
Assets that may be held as covered bond collateral include loans secured by one- to four-unit residential properties located in Canada. Insured mortgages are not permitted to be used as covered bond collateral, and covered bond issues are not guaranteed by CMHC or the Government of Canada.
The framework should support financial stability by helping lenders further diversify their sources of funding and attract more international investors to the market for Canadian covered bonds, invigorating the market.
Finance Minister Jim Flaherty
had committed to the amendments to the National Housing Act in the 2012 budget, giving CMHC responsibility for administering a legal framework for covered bonds.
Federally and provincially regulated financial institutions that meet the requirements of the program will be able to issue covered bonds under the framework. CMHC will maintain a public registry of Canadian covered bond issuers and programs.
Since 2007, covered bonds have been issued in Canada under a contractual framework. Assurance that the assets in the cover pool would be used for the benefit of investors had been provided through the prospectus.
Under the new legal framework, there is now statutory protection for the covered bond investor. This results in increased certainty for investors with respect to the continuity of payment and the recovery of their investment in the event of issuer default.
In 2007, the Office of the Superintendent of Financial Institutions issued guidance permitting Canadian covered bond issuance provided that the aggregate amount issued by any deposit-taking financial institution did not exceed 4 per cent of its total assets.