A Pfandbrief is a covered Bond. The idea is that you issue a bond and secure it by some form of collateral. The advantage of a Pfandbrief is that mandatory German Law governs the type and extent of collateral very thoroughly. This makes it simple for financiers to invest because it creates standardization and transparency which, ultimately, builds trust.
Issuing a Pfandbrief requires a special authorization for each underlying in question. Banks which have obtained such authorization are called “Pfandbriefbanken”.
Type of collateral
Depending on the underlying collateral, there are four types of Pfandbriefe:
- Mortgage-backed bonds (“Hypothekenpfandbrief”)
- Bonds backed by guarantees of (German, EU, and some other) public institutions (“Öffentlicher Pfandbrief”)
- Vessel-mortgage-backed bonds (“Schiffspfandbrief”)
- Aircraft-mortgage-backed bonds (“Flugzeugpfandbrief”)
- nature of underlying;
- quality of underlying;
- insolvency remote character of the underlying;
- liquidity cushion consisting of liquid and stress-resistant assets for the next 180 days.
- the international covered bond market;
- the German Pfandbrief market are available, and
- the financial performance of German Pfandbriefbanken