Covered bonds, loan growth and bank funding: The Swiss experience since 1932

Abstract

The global financial crisis triggered discussions about what factors constitute a stable mortgage finance system. This paper contributes to these discussions by empirically analysing the Swiss mortgage finance system from a macroeconomic and banking sector balance sheet perspective. Our analysis is based on a novel and near‐comprehensive data set of mortgage bond (Swiss Pfandbrief) issuances over the sample period from 1932 to 2014. The empirical results suggest that growth in the volume of the Swiss Pfandbrief does not induce more loan growth than expected given the state of the economy and that compared with other bank refinancing activities, the Swiss Pfandbrief provides a stabilising source of funding.

Mortgage-backed securities

“…In the agency MBS segment, pools are resecuritized into collateralized mortgage obligations (or CMOs) to create tranches with different prepayment risk and duration. In a "sequential pay" struc-9 E.g., see Prokopczuk et al (2013) for a discussion and analysis of the German "Pfandbrief" covered bond market and Meuli et al (2021) for an analysis of the Swiss covered bond market, which shares features of the Federal Home Loan Bank system. Berg et al (2018) reports that the five largest covered bond markets are Denmark, Germany, France, Spain and Sweden.…”

Mortgage-Backed Securities

“…In the agency MBS segment, pools are resecuritized into collateralized mortgage obligations (or CMOs) to create tranches with different prepayment risk and duration. In a "sequential pay" struc-9 E.g., see Prokopczuk et al (2013) for a discussion and analysis of the German "Pfandbrief" covered bond market and Meuli et al (2021) for an analysis of the Swiss covered bond market, which shares features of the Federal Home Loan Bank system. Berg et al (2018) reports that the five largest covered bond markets are Denmark, Germany, France, Spain and Sweden.…”