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With an outstanding volume of about €2.1 trillion, covered bonds rank high among the main funding sources for EU banks. These specialised debt securities provide banks with attractive funding for the financing of mortgages and public authorities in many EU member states. Due to overcollateralisation, covered bonds are relatively cheap and have a longer maturity. In turn, they are also an appealing investment class for risk-averse investors (including other banks), as long as the collateral is of sufficient quality and the amount is large enough.
International Financial Reporting Standards (IFRS) 9, issued by the International Accounting Standards Board (IASB) on 24 July 2014 and came into effect on 3 January 2018, addresses multiple aspects of accounting for financial instruments, namely classification and measurement, impairment of financial assets and general hedge accounting. The objective is to establish common and harmonised principles for the reporting of financial assets and financial liabilities.
In the aftermath of the financial crisis, banks have accumulated about a trillion euro of non-performing loans (NPLs) in their balance sheets. The high levels of NPLs in countries such as Italy, Greece and Portugal constrain their banks’ lending abilities, which causes delays in the countries’ economic recovery.
The Capital Markets Union (CMU) Action Plan set out a programme of actions aiming at overcoming information barriers that prevent SMEs and prospective investors from identifying new opportunities to secure funding and to make investments, respectively.
- Strengthening the feedback given by banks when turning down credit applications from SMEs, in order to allow rejected SMEs to adjust their business model to have better access to external funding;
- Mapping local or national support and advisory structures across the EU to promote best practices in assisting SMEs; and
- Investigating how to develop or support pan-European information systems that link up national systems to bring finance-seeking SMEs together with finance providers