Covered bonds should be exempt from a proposed large exposure limit under Basel III, especially in local currency areas such as Denmark and Sweden, industry bodies argued in response to a Basel consultation ending last Friday (28 June).

Covered bonds should count as Level 1 assets under CRD IV, the ECBC argued in a position paper released on Monday, with this treatment particularly important for domestic covered bonds in Denmark as it would otherwise be “simply impossible” for the country’s financial institutions to fulfil LCR requirements.