Originally published in The Euromoney Debt Capital Markets Handbook 2013 in October 2012.

A year on from 2011’s update and we are still waiting on the enactment of a covered bond statute in the US. There was good progress in 2011, but there is still a considerable legislative distance to go. And 2012 does not look like the year that will see covered bond legislation passed. 2012 is a presidential election year and therefore a difficult year for the passage of any legislation. However, there is a glimmer of promise in the strong bi-partisan support that covered bond legislation seems to enjoy and therefore the possibility that if the parties are looking to achieve something this year, covered bond legislation might benefit.

House of representatives -

In June 2011, the Financial Services Committee (FSC) of the US House of Representatives voted 44 to 7 to approve H.R. 940, US Covered Bond Act of 2011, sending the bill to the full House for a vote. H.R. 940 is similar in many respects to the bill introduced in 2010 by Congressman Scott Garrett. While the Committee adopted a number of amendments to H.R. 940 in passing the bill, the substance of the bill remains pretty much the same. The basic structure of the bill provides for the direct issuance of covered bonds by a bank or other institution. The cover pool is a part of the bank’s assets. If the bank defaults or becomes insolvent, the cover pool is separated from the bank and administered separately for the benefit of the holders of the covered bonds.