Paulson makes biggest push to date for covered bonds in U.S.

[MoneyGuy]

WASHINGTON (MarketWatch) -- Treasury Secretary Henry Paulson on Monday made the biggest push yet for development of a "covered bond" market in the United States, where banks get funding by holding pools of mortgages on their books. Paulson said that Congress wasn't an obstacle to the new market and legislation was not needed. Covered bonds are popular in Europe but have yet to catch on in the United States. One reason that Washington is attracted to them is that banks would hold the mortgages on their books. As a result, they would have an incentive to make sure the underwriting of the mortgages was iron-clad. One of the causes of the financial market turmoil was the fact that many mortgage originators did not have to care whether the mortgages eventually went sour. Four of the biggest banks in the United States, Bank of America [s:BAC], JP Morgan Chase [s:JPM], Citigroup [s:C] and Wells Fargo [s:WFC] have agreed to kick start a market for the covered bonds.

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