The remoteness (i.e. insulation) of the covered bonds from the bankruptcy of the issuing entity is
instrumental to ensure the full and timely repayment of the covered bond investor. The EBA
identifies four principles of best practice for ensuring an appropriate level of bankruptcy remoteness:
the bankruptcy law treatment of the covered bonds, the lack of automatic acceleration of payments,
the existence of pre-established procedures for the management of the issuer’s default phase and
the implementation of an independent management policy of the covered bond to ensure the
preferential treatment of the bond holder.