Use of covered bonds as a form of bank funding likely to tail off
THE TREND towards the use of covered bonds as a form of secured funding for banks will tail off, ratings agency Fitch claims.
Regulators want to encourage banks to use more secure methods of funding, such as covered bonds, in order to make them less susceptible to periods of financial stress.
But, despite a growing demand in the market for covered bonds, Fitch says the trend is likely to decline due to risk aversion amongst investors and the rising cost of funding.
“Investor risk aversion toward the banking sector, and unsecured bank debt in particular, has increased for both cyclical and structural reasons,” says Gerry Rawcliffe, managing director in Fitch’s financial institutions team.