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Covered Bond Monitor

Bringing greater transparency to Standard & Poor's covered bond rating process - and greater confidence to your covered bond analysis.

Standard & Poor’s Covered Bond Monitor (CBM) has now become a web based application. The CBM allows improving transparency on the quantitative rating process and applying rating commensurate stresses to the risks the cash flows of a covered bond program can be exposed to.

Incorporates Revised Criteria
Standard & Poor’s covered bond rating criteria (“Revised Methodology And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds”) published on Ratingsdirect on Dec. 16, 2009), reflect the basis on which we assign a covered bond rating. After determining the maximum potential elevation of a covered bond rating from the issuer credit rating (Step 3 of the criteria), Standard & Poor’s performs with the CBM the cash flow and market value analysis to determine the target credit enhancement (TCE) that is considered commensurate with achieving this potential uplift (Step 4).

Calculate and Analyse the Asset Liability Mismatch Measure (ALMM)
Standard & Poor’s Covered Bond Monitor (CBM) allows users to apply the covered bond criteria to a specific cash flow profile and to calculate not only the high point ALMM but also its development.

Derive Target Credit Enhancement (TCE) Quantitatively
Standard & Poor’s cover bond analysts as well as external users can quantitatively derive the Target Credit Enhancement deemed commensurate under our criteria.

Combine TCE & Other Outputs For Greater Transparency
By accompanying the TCE with additional outputs on the possible development of liquidity, credit, interest and currency risks the cash flows are exposed to, it brings additional transparency to the cash flow analysis applied by Standard & Poor’s when rating covered bonds. Standard & Poor’s CBM is designed for the cash flow analysis of covered bonds that have a ‘plain vanilla’ waterfall and are exposed to hedged or unhedged interest or currency risk. Typically it is used by Standard & Poor’s to analyze covered bonds in traditional European markets.

The most recent CBM is available via a web application and only available to authorized users. Its use is complimentary for financial institutions that issue or wish to issue covered bonds with a Standard & Poor's rating.

To run the CBM, users need to familiarize themselves with the current covered bond criteria. Further, the scheduled cash flows for the covered bond program to be analyzed need to be reported in a Microsoft® Excel® based “CBM Input Template”. Guidance on how the template should be populated can be found here.

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