History
Covered bonds were created in Prussia in 1769 by Frederick The Great and in Denmark in 1795. Danish covered bond lending emerged after the Great Fire of Copenhagen in 1795, when a quarter of the city burnt to the ground. After the fire, a great need arose for an organized credit market as a large number of new buildings were needed over a short period of time. Today nearly all real estate is financed with covered bonds in Denmark, and Denmark is the 3rd largest issuer in Europe.
In Prussia these Pfandbriefe were sold by estates of the country and regulated under public law. They were secured by real estate and subsidiary by the issuing estate. In about 1850, the first mortgage banks were allowed to sell Pfandbriefe as a means to refinance mortgage loans.With the mortgage banks law of 1900, the whole German Empire was given a standardized legal foundation for the issuance of Pfandbriefe.
Pfandbriefe are quite common in Germany and Europe and are utilized as a financial instrument with great success. In its more than 200 years of history, there was not even a single case of a defaulted Pfandbrief.
For this reason and due to the security provided by the cover pool, covered bonds were one of the first markets to recover following the global financial crisis of late 2008.
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—Henry David Thoreau (1817–1862)
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