The use of bonds backed entirely by the issuing lender are popular with investors because the underlying high-quality mortgages are not at risk even if the bank fails.
There is currently a cap on covered bonds of 4% of a bank’s assets, but report author Finn Poschmann says this should be raised, noting that the current limit on Canadian banks is lower than other similar economies.
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A report from CD Howe Institute calls for banks to be allowed to issue more covered bonds to fund mortgages.