Covered bonds

What the EU is doing and why

Covered bonds are a cornerstone of long-term finance for many EU Member States as a key instrument to fund high‑quality, long-term assets such as residential mortgages and public sector loans. Covered bonds are debt obligations issued by credit institutions which offer a so-called double-recourse protection to bondholders: bondholders have recourse not only to the issuer, but if the issuer fails also a direct and preferential claim against the earmarked assets and an ordinary claim against the issuer's remaining assets.

The covered bond market is well established in the EU. At the end of 2024, the outstanding volume of EU-issued covered bonds accounted for approximately 2.5 trillion EUR out of 3.3 trillion EUR outstanding worldwide, making European credit institutions global leaders in this market. On 27 November 2019, the EU adopted a covered bond legislative package composed of the Covered Bond Directive (CBD) and a prudential treatment for banks’ covered bond exposures through an amendment of the Capital Requirements Regulation (CRR). That package sets out a comprehensive minimum harmonisation framework that all covered bonds issued in the EU must meet. Member States were effectively given until the 8 July 2022 to adopt the necessary transposition measures to comply with the CBD.

The EU covered bonds market is now subject to a unified European regulatory framework based on a principle of minimum harmonisation. This EU framework harmonises the core elements and safeguards of covered bonds activities and ensures high standards for this key funding instrument for EU credit institutions.

As a follow-up, the Commission is mandated to submit a report to the Council and to the European Parliament on the implementation of the covered bonds framework. In this context, the Commission sent a call for advice to the European Banking Authority (EBA) in July 2023. The EBA published its response to the call for advice in September 2025. The Commission is currently working on its report.

Relevant legislation