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During the summer, the U.S. Treasury and Fed introduced the covered bond framework to encourage additional sources of financing within the mortgage market and strengthen financial institutions.
A covered bond is a secured debt instrument that provides funding to a depository institution, collateralized by high-quality mortgage loans that remain on the issuer’s balance sheet. The Treasury, Federal Reserve, FDIC, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Securities and Exchange Commission collaborated to create a best practices guide for covered bonds.