Covered bond market to become a reality

The Treasury, after talking to 50 or 60 institutions, is pushing for the creation of a "covered bond market" as a way to provide liquidity to banks while assuring investors their money is safe. Basically, such bonds are underwritten by banks and are linked to mortgages kept on bank balance sheets (they will not be sold into a secondary market). One twist is that if a mortgage runs into trouble, it would be replaced in the mortgage pool, something that should entice bond holders. The bond payments would be only indirectly tied to mortgage payments: The bank will set the terms as it sees fit. Bank of America will likely be the first to issue a covered bond; it has experience in Europe and issued such a bond back in June 2007, according to media reports. JPMorgan Chase, Citigroup and Wells Fargo will follow. Top investment banks have apparently agreed to make markets in these securities.

For more:
- here's a Washington Post article

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