Clifford Chance

Amendment of the act on covered bonds and mortgage banks

13 June 2016

The amendment of 24 July 2015 (Journal of Laws of 2015, item 1259) (the "Amendment") of the Act on Covered Bonds and Mortgage Banks of 29 August 1997 (consolidated text of 28 April 2003: Journal of Laws no. 99, item 919) (the "Act") entered into force on 1 January 2016. The Amendment introduces a number of changes in response to the expectations of the banking sector that facilitate the issue of covered bonds and introduce a number of features to accommodate the purchasers thereof. One of the goals behind the Amendment is to mitigate the liquidity (and the interest rate) risk borne by banks that provide mortgage loans. These risks originate from, among other things, the fact that to date the granting of mortgage loans has been financed primarily with short-term deposits, the maturity of which differs significantly from that of the long-term assets which they finance. Such a situation may result in the risk of the potential loss of liquidity by a bank whose customers decide to withdraw even a relatively small portion of deposits. Increasing the share of covered bonds (which constitute a long-term source of financing) as a new source of capital raised by banks intended to result in the increased security of banks while, at the same time, limit the risk of their insolvency. In addition to the Act on Covered Bonds and Mortgage Banks, the Amendment introduces also changes to other Acts the provisions of which are related to the issue of covered bonds, including tax Acts and the bankruptcy law.

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