CFA Level I · CFA Level I Exam · Fixed-Income Securitization
A covered bond investor has dual recourse. In the event the issuing bank defaults, the investor's first claim is most likely against:
The investor's first claim is against the ring-fenced cover pool. Dual recourse gives covered bondholders this segregated pool plus a further claim on the issuer as a senior unsecured creditor for any shortfall. Central banks do not guarantee covered bonds as a feature.
- Athe issuer's senior unsecured creditors
- Bthe cover pool of assets, which is ring-fenced for covered bondholdersCorrect
- Cthe central bank guaranteeing the covered bonds
Explanation
Dual recourse means the investor has a claim on the cover pool, which is segregated for them, and also a claim on the issuer. Upon default the cover pool is the primary source of repayment. The issuer claim is secondary and ranks as senior unsecured for any shortfall, and no central bank guarantee is a feature.
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