The Pfandbrief 2011 | 2012

Preface
Dear Reader,
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For over a year now, the eurozone debt crisis has dominated the sentiment on the global
capital market. The Pfandbrief has held up well in this difficult environment, just as it
had previously done during the bank crisis. Its importance as a safe haven for investment
capital remains undisputed. Investors appreciate the safety of the Pfandbrief, its
liquidity and transparency – especially in difficult times. Policymakers and regulators,
too, are aware of the stabilizing effect of the Pfandbrief on the financial system as a
whole, and take this into account in the forthcoming regulatory environment. The number
of issuers is rising, and the concept of high-quality covered bank bonds continues to
spread both in the eurozone and further afield. Relevant parliamentary bills in the USA,
Canada, Australia and New Zealand are evidence that banks are increasingly resorting to
secured refinancing.
All things considered, therefore, the Pfandbrief showed itself in a very positive light
as at mid-2011. Yet there is no reason for complacency: the challenges which the banking
industry will have to overcome in the years ahead are too demanding and multifaceted
for that. Refinancing in particular is becoming the central strategic challenge
facing the banking sector given the proposals for new capital rules for banks and insurers,
known as Basel III and Solvency II. This is true primarily of unsecured funding. For
example, under the Basel III liquidity rules, senior unsecured debt issued by banks is
to be treated less favorable than corporate bonds. Nor will the Pfandbrief remain unaffected.
Although the regulatory initiatives recognize the high quality of the Pfandbrief in
principle, the proposed new capital rules for banks fail to give appropriate consideration
to low-risk cover pool eligible lending activities.
One thing is certain: Basel III and Solvency II will change the German banking landscape.
It remains to be seen whether the changes that are initiated will move in the
direction policymakers and regulators would like to see. One reason for this is, without
doubt, that the analysis of the cumulative effect of all the planned regulatory initiatives
has so far been wholly insufficient. An efficient regulation which seeks to enhance the
stability of the financial system should not be allowed to put products such as Pfandbriefe,
which can contribute towards such stabilization, at a disadvantage. Instead, it
should offer incentives to use them.
Pfandbrief Banks ought to be able to continue to rely on their highly efficient and
especially favorable refinancing instrument. It is therefore crucial that regulators and
policymakers make the necessary adjustments when shaping the European supervisory