Money Morning Contributing Editor Shah Gilani explained the benefits of a U.S. covered bond market in a story Wednesday. Covered bonds are debt securities backed by the cash flows from public-sector loans or from real-estate mortgages. They resemble other asset-backed securities (ABS) created through the process known as "securitization," but have one big difference: Covered-bond assets must remain on the issuer's consolidated balance sheet.
"A robust covered bond market offers many solutions to the problems that currently ail the U.S. economy, as well as its underlying financial system," said Gilani. "A covered bond market would jump-start needed lending by creating a healthy, transparent and "honest" securitization market. It would also enable the United States to regain its title as the financing center for the global economy."