Pfandbriefe - Germany

1 Who is the issuer? Universal credit institution with a special licence

Since the PfandBG 2005, the issuer does not need to be a specialised bank.
2 Does the bondholder have recourse to the issuer (in case of special issuer: recourse to the sponsor bank)? Direct

There is no direct legal link between cover assets and Pfandbriefe. All obligations from the Pfandbriefe are obligations of the issuing bank as a whole, to be paid from all the assets of the issuing bank. Only in the case of insolvency, the cover pool is isolated from the general insolvency estate.
3 Who owns the cover assets? The issuer directly
4 Is the issuer the originator of the cover assets? Yes, partly (external origination possible)

A Pfandbrief bank as a funding vehicle only is not allowed.

1 What type of assets may be included in the cover pool?
  Primary assets Substitution assets
Public sector assets Mortgage assets Other 1* Other 2* Other 3*  
Exposures to public sector entities x x
Exposures to credit institutions x
Residential mortgage loans x
Commercial mortgage loans x
Ship loans x
Aircraft loans x
Exposures to multilateral development banks x x
Export finance loans x
Derivatives x
2 What is the geographical scope of assets?
  Primary assets Substitution assets
Public sector assets Mortgage assets Other 1* Other 2* Other 3*  
Domestic x x x x x
Multilateral development banks x x
EU x x x x x
EEA x x x x x
UK x x x x x
CH x x x x x
Australia x x x
Canada x x x x x
Japan x x x x x
New Zealand x x x
USA x x x x x
OECD x x
G10 x x
Other x x x

Ship and aircraft mortgages are allowed worldwide subject to speical criteria. Land mortgages in Singapore allowed as well for Mortgage Pfandbrief.
3 Is there a maximum level for substitute assets in the statutory national framework? Yes, please specifiy

20% for Mortgage Pfandbrief, Ship and Aircraft Pfandbrief; 15% for Public Sector Pfandbrief
4 Are there any reporting requirements for covered bond issuers to investors? Yes, by law and in line with art. 14 of EU Covered Bond Directive

According to § 28 I PfandBG issuers are obliged to publish on a quarterly basis information regarding nominal and NPV coverage, stress test and the cover pool assets.
5 What is the frequency of reporting to investors? Quarterly

1 What is the basis for property valuation Mortgage lending value

For further information please see comments box at the end of the questionnaire.
2 Is a regular update of the property value required? Yes, new external physical apraisal within a specific time span

There is a monitoring of the property value. §26 BelWertV wants a review of underlying assumptions of the MLV, if there are hints that these could have deteriorated; especially, when market prices have declined substantially in a respective region. But, yearly valuation reports are not necessary.
3 What are the LTV limits (single asset based)? Please specify in %/n.a. Residential
Other assets

All limits 60%. Other assets (Aircraft) 60%.
4 Are loans in excess of LTV limits eligible for inclusion in the cover pool? Yes (soft limit)

No absolute lending limit only relative: mortgage loans may have higher LTV than 60 % but only the part of the loan up to 60 % LTV is part of the cover pool.

IV.1 Derivative contracts in the cover pool

1 Are derivative contracts eligible for the inclusion in the cover pool? Yes, exclusively for hedging purposes (by law)
2 Are there requirements for derivative contracts (e.g. eligibility criteria for hedging counterparties)? Yes, specified in law
3 Will derivative contracts remain in case of insolvency of the issuer? Yes

For further information please see comments box at the end of the questionnaire.
4 If derivatives are permitted in the cover pool, what is their ranking? Pari passu to covered bond holders

IV.2 Exposure to market risk

1 What is the primary method for the mitigation of market risk? Natural' matching (i.e. match funding, matching without the use of off-balance sheet instruments) and stress testing
2 Are there mitigating provisions for interest rate risk? Yes, by legislation/regulation
3 Are there mitigating provisions for foreign exchange risk? Yes, by legislation/regulation
4 Are there mitigating provisions for maturity mismatch risk? No

No requirements on maturity mismatch risk. PfandBG requires Pfandbriefe are covered on NPV even in case of interest rate and currency movements.
5 What type of coverage test is applied? Nominal cover
Present value cover
6 Are there stress scenarios applied? Yes, by law

For further information please see comments box at the end of the questionnaire.

IV.3 Liquidity risk

1 Is exposure to liquidity risk mitigated? Yes, by law
2 What liquidity risk mitigation requirements are in place (principal)? 180 days liquidity provisions
Maturity extension provisions

Pfandbrief issuer are obliged to cover the maximum liquidity gap within the next 180 days since 2009.
3 What liquidity risk mitigation requirements are in place (interest)? 180 days liquidity provisions
4 What is the consequence of not fixing a breach of liquidity risk mitigants? Other, please specify

Breach of liquidity risk mitigants not allowed. Violation of legal req. could lead to measures by financial supervision authorities and license loss.
5 If 180 days liquidity provisions are in place, what types of liquid assets are eligible LCR Level 1
LCR Level 2a
LCR Level 2b
Short term exposures to credit institutions (Credit Quality Step (CQS) 1)
Short term exposures to credit institutions (CQS 2)
Short term deposits to credit institutions (CQS 1)
Short term deposits to credit institutions (CQS 2)
6 If 180 days liquidity provisions are in place, the calculation of principal is based on: The expected maturity date

Maturity extension must not be considered when calculating the 180 days liquidity.

IV.4. Maturity extension

1 Is maturity extension allowed by national law? Yes, required

Detailed provisions (§ 30 Pfandbrief Act)
2 Is it possible to issue… Soft bullet
3 Which trigger plays a role for maturity extension according to law - independent or alone or in combination? Issuer bankruptcy/resolution
4 Does any competent authority need to give its okay (or non-opposition)? Yes

Bankruptcy/resolution: a cp administrator can extend the maturity under certain conditions. Consent of supervision authorities not necessary.

IV.5 Overcollateralisation

1 Is mandatory overcollateralisation required in the law ?

Public sector - 2% - OC: 2% NPV + Nominal 2%

Mortgage - 2% - OC: 2% NPV + Nominal 2%

Ship - 5% - OC: 2% NPV + Nominal 5%

Aircraft - 5% - OC: 2% NPV + Nominal 5%

The 2% on a NPV basis must not be taken into account in nominal OC calculations and should cover potential winding-down costs. They are thus to be seen as a general coverage requirement according to Art. 15 (3) CBD.

V.1 Cover pool monitor (CPM)

1 Is there a cover pool monitor in addition to national competent authorities in the statutory law? Yes, by law and in line with Article 13 of EU Covered Bond Directive

For further information please see comments box at the end of the questionnaire.
2 Is the CPM separate from the issuing credit institution? Yes, required by national statutory law
3 Is the appointment, dismissal, eligibility criteria and the role of the CPM regulated by the national statutory law? Yes

V.2 Banking supervision

1 Which are the national competent authorities designated to carry out covered bonds public supervision in the law?

The Federal Financial Supervisory Authority - Website

The German banking supervisory authority (BaFin) carries out the supervision on German Pfandbrief banks with a special division and also carries out the supervision of the cover register. Copies of the cover register automatically shall be transmitted regularly to the supervisory authority.
2 Is a special permission required for a covered bond programme according to national law? Yes, licence for institution + competent autority

For further information please see comments box at the end of the questionnaire.
3 Is there a covered bond issuance limit in law or regulation? If yes, please specify No
4 Does the national statutory law provide for the appointment of a dedicated cover pool administrator in case of insolvency/resolution (transfer included acc. to BRRD [Bank Recovery and Resolution Directive])? Yes
5 Which is the typical frequency in the national statutory law of reporting from the covered bond issuers to the designated competent authorities? Quarterly

1 Does the national statutory law meet the requirements laid down in the EU Covered Bond Directive? Yes
2 Does the statutory law meet the requirements of Article 129 of CRR [Capital Requirement Regulation]? In this case, please specify the collateral types meeting the Art. 129 CRR. Yes

PfandBG is compliant with Art. 129 CRR. This was confirmed by German government in the reasons to the amendments 2021 for Mortgage, Public Sector and Ship Pfandbriefe, but not for Aircraft Pfandbriefe.
3 Does the statutory law allow covered bonds out of the scope of Art 129 of CRR? In this case, please specify the collateral Yes

Aircraft Pfandbriefe
4 Are listed covered bonds eligible in repo transactions with the national central bank? Yes

Any further comments/information? Section III.1: "The basis of this LTV calculation is the so called mortgage lending value (Beleihungswert), which has to be calculated in a different way compared to the market value, § 16 PfandBG. Details of the valuation procedure and the qualifications of the appraisers are regulated in a specific statutory order on mortgage lending value (Beleihungswertermittlungsverordnung, BelWertV), § 16 IV PfandBG. § 7 BelWertV requires personal and organisational independence of the valuer. Personal independence means that there must not be any connection between the valuer and the borrower. Organisational independence means that inhouse valuers must not be part of the credit division and must not be integrated in the credit decision. Organisational independence is assumed for external valuers. Similar provisions are regulated for mortgage lending values of ships and aircraft."
Section IV.1.3: "PfandBG allows the use of derivatives for mitigation of market risks. In order to be eligible as cover pool assets derivatives have to be based on standardized master contracts in such way that a Pfandbrief bank’s insolvency does not lead to a termination or default of those derivatives registered in the cover pool register. The derivatives, which are registered in the cover register, form a part of the separate legal estate. The insolvency procedure has the same consequences for them like for the Pfandbriefe and they profit of the same ranking like the Pfandbriefe."
Section IV.2.3: "A specific statutory order on net present value (PfandBarwertV) prescribes in detail how to calculate the net present value (procedure, stress scenarios, risk models etc.). This can be done by static (+-250 basis point parallel yield curve shift) or dynamic approaches (more sophisticated statistical approach with nonparallel yield curve shift of at least 100 basis points)."
Section V.1.1: "The cover pool monitor (“Treuhänder”) supervises the cover register permanently. The CPM has to ensure that the prescribed cover for the Pfandbriefe exists at all times and that the cover assets are recorded correctly in the cover register, §§ 7, 8 PfandBG. Without his consent, no assets may be removed from the cover pool. The BaFin published a specific statutory order on details of the form and the contents of this cover register (Deckungsregisterverordnung – DeckRegV), § 5 III PfandBG."
Section V.2.2: "The issuer is a fully equipped credit institution, which has a special licence to issue “Pfandbriefe”, which is provided by BaFin.
§ 2 I PfandBG sets minimum requirements to get and to keep this special licence: - core capital of at least 25 million euros, - general banking licence allowing to do lending business, - suitable risk management procedures and instruments, - business plan showing regular and sustainable issues as well as necessary organisational structure."