This paper shows that strict match pass-through funding of covered bonds provides safe and liquid mortgage bonds. Despite a 30% drop in house prices during the 2008 global crisis Danish mortgage bonds remained as liquid as most European government bonds. The Danish pass-through system effectively eliminates credit risk from the investor's perspective. Similar to other safe bonds, funding liquidity becomes the main driver of mortgage bond liquidity and this creates commonality in liquidity across markets and countries. These findings have implications for how to design a robust mortgage bond system and for the treatment of covered bonds in capital regulation.
|Number of pages||60|
|Publication status||Published - 2016|
|Event||The 43rd European Finance Association Annual Meeting (EFA 2016) - BI Norwegian Business School, Oslo, Norway|
Duration: 17 Aug 2016 → 20 Aug 2016
Conference number: 43
|Conference||The 43rd European Finance Association Annual Meeting (EFA 2016)|
|Location||BI Norwegian Business School|
|Period||17/08/2016 → 20/08/2016|
- Mortgage bonds
- Covered bonds
- Housing crisis
- Market design
- Banking regulation
- Financial intermediation
Dick-Nielsen, J., Gyntelberg, J., & Lund, J. (2016). Safe and Liquid Mortgage Bonds: Evidence from the Danish Housing Crash of 2008. Paper presented at The 43rd European Finance Association Annual Meeting (EFA 2016), Oslo, Norway.