From Regulation to Recovery: Key Insights from the 38th ECBC Plenary with Patrick Seifert #6

Building on the discussions from the latest ECBC Plenary Meeting in Stavanger, Richard Kemmish, EMF-ECBC & ISMMA Consultant, sits down with Patrick Seifert to examine the policy, regulatory, and economic issues shaping the future of housing finance and covered bond markets across Europe.

This episode of Mortgages Covered explores: 

• Regulatory complexity and its impact on funding choices and covered bond markets.  
• Housing affordability as a policy priority and the role of mortgage guarantee schemes.  
• The importance of European competitiveness, economic growth, and job creation.  
• Guarantee schemes as a fiscally responsible tool to support lending without increasing public debt.  
• EMF-ECBC’s support for the development of Ukraine’s covered bond framework and post-war recovery. 

Transcript

SPEAKER_00 0:00

The 38th edition of the ETBT plenary session is held in Sunny Stavange in Norway. It's been a great pleasure, it's been a very intense time, but what are the key takeaways from that? Welcome to the EMF ETBT podcast. We're going to be discussing some of the key topics which have been flavoring the debate here in Stavanger today. And I'm delighted to be joined by Patrick Snifer. Patrick, thank you so much for joining me today. It was a pleasure, Richard. So for you, what are the main messages from today's conversations and the panels and the keynote speakers we've been talking we've been listening to?

SPEAKER_01 0:42

Well, first of all, it was great to be back and as you said, discover a sunny Stavanger. And I realized is nine years ago that we had been to Norway for an ECBC plenary meeting. I think it was a bit too long of a wait, in my view, for a market that is fairly relevant and integral in the covered bond world. But I think the timing was excellent. And that's why the vibes around the plenary have been very encouraging in spite of not the easiest logistics in all fairness. And this is not just geopolitics, but of course it's energy prices, inflation, and so on and so forth. So I think you know, for us as a covered bond community, it's very easy to uh conclude that you know we shouldn't fix what's not broken. Period. But then we can't stop there because we have to be mindful of that broader context that we're operating in, in particular the regulatory context. And my call here would be and was uh at least to be freezing regulation and also you know being mindful of the fact that at the moment in Europe money takes too long to find its way into the economy. That is telling you something about regulation and over-regulation. In my view, that we have to, you know, again, be mindful and fix uh just to become more efficient and to solve those challenges that yeah, the world is putting in front of us.

SPEAKER_00 2:26

Obviously, the geopolitical things are a massive problem. There have been issues even whilst we've been here, the the fall of the government in Romania and all the politics we've had. We we've got this narrative of the covered bonds being the perfect product for this kind of storm. Um but the regulation side isn't just about covered bonds. You say about freezing the regulation. Yeah, we've got a directive, it works very nicely, maybe we'll tinker with it with the EBA report, but it's about everything else as well. There's changes to the securitization rules, there's changes to the energy performance of buildings directive. Regulation never sleeps.

SPEAKER_01 3:03

Somehow for regulation, today seems to have more than 24 hours, and that's a sad thing. Uh too busy to work as hard as we want, but then yeah, kind of difficult to compete. Um, but you're right. And and then again, uh, you know, regulate the the thing with regulation is like it's it's the overall context, right? You you can always look at individual parts of it, but then you know how the whole ecosystem, the regulatory ecosystem works, uh you know, is is not always uh easy to to understand, um unless again you take a very holistic view. And and and the more we get into the details, the less we take a holistic view. I think that that that's a bit of a of a of a of a crucial trade-off. Um in the panel discussion we just had this morning, I you know, with all the due respect to to how great this market works, also um in difficult market circumstances, and it remains by and large a triple-A market in a world where government debt is certainly the case for US Treasuries, losing its triple A. So that's telling you that from a qualitative point of view, there is no reason to worry. Um but if you look at it a bit more in detail, you figure out that certain banks, big banks in Europe, great names, don't use covered bonds as much as they did. And you have to ask the question why is that? Uh those can be the Kaiser banks of this world, this can be the Deutsche Banks of this world, this can this can be San Paolo and Tessa. So names you would ideally want to see in the market for investors to participate and being able to build great portfolios, but also for being able to channel cheap funding into, again, housing or at least the economy in a broader sense. And I think that's where regulatory capital certainly plays a role. These guys are active in the market, just they don't use covered bonds, they use senior unsecured uh formats or tier two and and 81. And I think there the challenge is quite frankly to lend more and lend cheaper uh in support of the European economy. And I'm not referring to any particular name and saying they don't do that, but I think the the context in which they operate is not making it easy to put that money at work. And I think that is a challenge we have to take seriously. Um speaking of Germany, as representative of LBBW, obviously the the release of the debt break has been a moment of truce, but a very disappointing one, to be honest. In a way, but well, we were willing to spend money and we find it incredibly difficult to put that money at work. And that again is telling you about you know the difficulty in um you know uh overcoming too complex regulation. Uh the defense sector is a is a great example of how not to do it in uh in a situation where there is a great sense of urgency. Uh, but let's uh not forget that affordability of housing is uh at least uh uh equally urgent. Um and I think we have to find new ways in you know giving broader parts of the population access to a housing market that has just not been affordable enough as of uh as of late, um, the moment that interest rates uh basically normalized to some extent. And of course, there is a lack of supply and and and all the you know the things we know all too well since the pandemic basically uh people call it the poly crisis. I mean it's been one crisis after the other, but you know, the effect has certainly been detrimental when it comes to the housing market.

SPEAKER_00 6:33

Well, yeah, in the latest crisis, obviously we've got an inflation spike coming, we've got an interest rate spike coming. That's only going to make the affordability more of a problem. And you speak to anyone in any country.

SPEAKER_01 6:44

Bundes uh at three percent, uh US Treasury is at four percent, guilds at five percent. You know, someone has to pay uh uh for for all of this, and that's at the same time, uh it still serves as a benchmark for investors, of course. And you know, if you accept less than that, you should have very good reasons. And again, uh we do see covered bonds pricing through GovI's uh every now and then. Um the French market, for example, has been one of those examples. Um, but you know, the those those levels are you know too high for the for the current uh let's say uh budget deficit that we see. Um and at the same time the money is not being deployed as as efficiently as we would like to see it, because look at the gross forecast. Uh it's just been brought down again by the by the IMF uh by and large 0.5. I mean that's basically stagnation.

SPEAKER_00 7:33

Yeah. Let's get on to that um point about affordability though. I mean we have a very limited scope. We can't do anywhere near as much as the person who puts the bricks on top of each other to address that fundamental problem. Uh but we do have responsibility, it's absolutely key to what we do. What can the EMF ECBC as a whole do about mortgage affordability schemes? It's the number one political priority for so many people.

SPEAKER_01 8:00

I think we're not just observers. I mean we are being listened to, um, we have a voice, and I think uh uh that's where it starts because um you mentioned regulation never sleeps, so we have to make sure that at least they hear what we see. And I think that is relevant because it's it's it's a view uh uh uh from a market into a market and circling circling back what what what we see. Uh taking the covered bond market as uh starting point for for you know that analysis, that market is strong enough to support more. I mean that there's no doubt about this. Could we issue, could we place uh as a bank or as an issue or more covered bonds into the market, would investors feel comfortable with? Absolutely, yes. Uh so the question is wh why it's not happening. Again, I'm coming back to the issue of regulatory capital. To some extent, you know, we should make this uh uh still a little cheaper to to lend to housing, um, but you can't ignore the fact that uh you need an entry ticket into the housing market. And I think that's the question of equity. Um and the times where you could finance 100% at I don't know 0.5 or 1.5% or so is is is basically over. Uh so you need to build equity before you can play in the housing market. And I think if this is, I don't know, 50,000 K or 100,000 K, uh it means you can start thinking about uh housing maybe at the age of uh I said uh early 40s, let's be a bit more optimistic, maybe mid-30s, but it's is way too long. So I think there is situations for broader parts of the population where we have to think of ways to bridge this. Um and I think that's where guarantees, for example, uh, in my view, would make sense. And I think that's where the EMF and ECBC has made an excellent job in uh you know, first of all, recalling that such instrument exists, uh also recalling the uh well the efficiency of that instrument because guarantees doesn't mean you give money away. It's you know is a way of just facilitating the lending at a at an attractive cost. Um and and uh from that point of view, we will have to make use of guarantees also in other priority areas. Again, I was referring to defense, and I'm not gonna turn this into a defense podcast, but you know, same set level of urgency, same level of uh uh over-regulation and over-complicated processes. Um and and and if we consider that a national priority, so is housing affordability, in my view. That's why uh to the work of the of the EMF, uh ECBC. Um, I think you know, the latest position paper, which also very specifically mentions uh ways of uh incorporating guarantees into uh lending for affordable housing, in in my view was a a bold position, but a uh a strong and a good one, and I very much hope it will be heard and listened.

SPEAKER_00 11:00

I I agree with that. I think that the examples from the schemes that were introduced in um in Romania, in Greece in the crisis to provide a guarantee were very important to stimulating, particularly for younger people, for stimulating their ability um to well, basically to offer high loan to value mortgages from the banking system. Challenges to rolling that out to other countries? One size fits all kind of thing.

SPEAKER_01 11:28

Well, maybe not one size fits all, but I think you know that you can be in a well quote unquote better country, but the problem is the same. Right? If you don't have affordable housing, if you can't afford housing in the place you want to work, that's a problem. And I think you might want to adopt uh a little bit here and there. Um but but I think the instrument as such is still, you know, a very powerful one and flexible enough to adjust. Um I also think governments have to. Well, I'm not a politician, you can hear that uh in the way I I speak, but I think politicians have to have a bit of skin in the game too. Either we are serious about the fact that we want to make Europe more competitive, well, then we should have, as a consequence of that, economic growth and more jobs. If that is the case, there will be room for young people to grow, economically speaking, and to repay their loans that are currently and should be guaranteed by the government. So I think from that point of view, some risk is offsetting. And of course, if there is no economic growth, uh some of those guarantees might be at risk. But if we don't have economic growth in Europe, we'll have way tougher problems to deal with, starting from defense into energy uh dependencies, and generally the question of how are we going to manage government debt at a, well, I could say almost record high level at the moment. So, from that point of view, I think again, a lot speaks for that holistic view. And if you think we are rebuilding a Europe, a stronger one, a more robust one, a one that is less dependent on the allies from the past and maybe open enough to build new alliances with Canada, for example, which I think is a great example where where things go in the right direction. Japan, another country, and and we've had uh Japan present here at the at the plenary meeting, which which obviously was great. Um, I think the moment you take that holistic view, is that a couple of things that governments can do? Uh, and again, this is no rocket science. Guarantees have been around for some time. It's just about you know making uh smart use of a of a relatively straightforward product, uh, but which delivers great utility to the people concerned.

SPEAKER_00 13:45

At the risk of being nerdy, which is always a risk in our markets. I think one of the real advantages of guarantees when you compare it to blended interest rate products or um fiscal subsidies on mortgages is it doesn't hit the government's balance sheet. If it's structured correctly, absolutely debt.

SPEAKER_01 14:03

It's also part of it. And uh maybe part of the uh truth is also that you know the level of debt that we have in the Western world has reached levels uh which start to become a little painful, and everyone's kind of twisting here and there. And again, I'm not talking uh about well doing uh misleading uh uh things, but I think to optimize uh your your your debt and your um uh cost of debt, uh if if that makes any sense, uh in my view is you know should be a key priority. And uh part of that is also like you know, what do you want to achieve on what uh political level? Uh yes, we do have member states that they have their uh key priorities and uh you know should take care of their key responsibilities. But we're talking about a stronger Europe, to me, and LBBW is one of the few banks uh serving the European Commission wholeheartedly since they stepped up uh to respond to the pandemic and and and and other challenges that have followed up. I think it's natural that stuff happens on a European level. Um and um at the risk of becoming nerdy, I think that's where the banking sector always has to deliver. Because uh you want that critical mass also in the banking sector. Um but long story short, uh I agree to your point. It can be a smart way to manage government debt in a more responsible way, also to really ask, you got to ask the crucial questions. What is the role of the government? Uh it's not to produce uh regulation um 24-7, it's not a good idea. It's on focusing certain tasks that are in better hands international governments than on a European level, for example. But there is things that should happen on a European level, and I promised I would not turn this into a defense uh podcast, but defense is certainly one of the things we need to be looking at on a European level. Um, and even if certain countries got to take the lead and Germany might be part of it. Um, I think uh again, it's it's it's a it's a redistribution of tasks. And I think redistribution also means we should get rid of some tasks. Um, you know, there used to be something like the 80-20 rule. Uh I I see no no no reason, no fundamental reason in this world why the 80-20 rule should not apply to regulation um and also to policy making, which means pick your priorities, set them right, and get rid of what is not absolutely needed.

SPEAKER_00 16:36

There's one final topic I wanted to uh touch on because we spoke a lot of this uh at the plenary about it. It's been front and center, and it's something which, very close to my heart, and I know is very close to your heart, is the situation in Ukraine. Ukraine is developing a covered bond law, a securitization law. There's a delegation from the Housing Finance Corporation here, uh, and also from the Deputy Minister. What is the EMF ECBC trying to do to help Ukraine to help develop the post-peace reconstruction or post-war reconstruction?

SPEAKER_01 17:10

I think this is an ongoing task. And uh I I believe it's is is is preparing for that day that we all hope is gonna come very soon, where the situation is no longer a war, but you know, ideally a peace or something in between. Um around that I think we give moral support. That's the least we can do as human beings. Second, we try to give them an idea of you know how this market works and how they could make use of that market to achieve their goals in a post-war scenario, to some extent now, but again, operating in war circumstances is obviously very different from the covered bond market per se. Um, we can certainly also help them to align whatever initiatives they have to other policy priorities around Europe, because I think whatever package Ukraine will need and hopefully receive is not just going to be access to the covered bond market, but there is going to be European Union support, there is going to be maybe EU membership or something you know closer to the EU than today. There's going to be something around security guarantees. Um, and I think um you know making making it easy for you know the representatives of a country that we we both met over here, and from a personal uh point of view, you can only you know give them a lot of respect for for what they uh for what they deliver in tough circumstances. I mean, I've been talking to these guys in winter, and we all know what happened in winter. It was a record winter, uh, and and and and Russia was giving them a very hard time, but these these guys just stay very focused and they do the work because they believe that there will be an end to this nightmare, and then they want to be ready. And I think that's something I like. Honestly speaking, show me policymakers in Europe that get ready for something to come. Normally they deal with problems when they you know start uh becoming very urgent. Uh so that I like the attitude, and I think we have a uh you know a role to play as Europeans, um, and I think as EMF, uh ECBC, we we do that by making available whatever information there is, by making available whatever networking opportunities there is. And as always in history, when you are late, for whatever circumstances, you at least have well, we we all know the story about being late and you will be punished by history. That's not what I'm talking about. I'm talking you are late, you can replicate what others did, and you can learn from the best. And I think that's what we were trying to do on Monday with the Ukrainian delegation saying, Well, look at the different model that there is, make sure you uh understand what exactly your mission is, and we will try to give you options, you know, to find the operating model that best serves your mission. And I think the mission to give affordable housing to Ukrainians uh in a post-war scenario is a very relevant one, and not just for Ukraine, but also for Europe as a whole, and that's why we both work on it. Um, and we will not rest until we get there.

SPEAKER_00 20:21

Absolutely. I was um speaking at a conference in Kiev a couple of weeks ago, and one of the things I made Luca promise was that we can have the plenary of the ECBC in Kiev within five years. I'm looking forward to that. So am I. Patrick, thank you very much for joining us today. It was a pleasure, as always. Thank you, Richard.