Level 2A assets include regional governments, local authorities or PSE with a risk weight of 20% and covered
bonds with a credit quality step 2 rating and non-EU covered bonds rated at credit quality step 1. Also corpo-rate bonds with at least credit quality step 1, a minimum issue size of EUR250mn and maximum maturity of
10 years at the time of issuance are classified as Level 2A.
Level 2B incorporates high quality securitisations for RMBS, auto, SME and consumer loans and high quality
covered bonds that do not meet the rating threshold of Level 1 and 2A. Shares meeting certain conditions and
corporate bonds with at least credit quality step 3, a minimum issue size of EUR250mn and maximum maturity
of 10 years at the time of issuance are accepted as Level 2B.
The classification of covered bonds as Level 1 and Level 2 is very positive. We expect that many European bank
treasuries will use covered bonds in addition to sovereign, agency and supranational debt and will optimise their
liquid asset portfolio under both liquidity and risk-return considerations. The spread impact on covered bonds,
however, should at least in the short run be limited as spreads in this sector are already heavily compressed
due to the CBPP3, negative net supply as well as the TLTROs. Moreover, the favourable treatment of covered
bonds was well-flagged and should be largely priced-in