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Answer: Covered bonds are subject to bank regulation, while true securitizations are not regulated.
## Explanation Let's analyze each option: **Option A: TRUE** - This is a key difference. In covered bonds, the cover pool remains on the issuer's balance sheet, while in true securitizations, the assets are removed from the balance sheet (off-balance-sheet treatment). **Option B: TRUE** - In covered bonds, payments come from the issuer's general cash flows, while in true securitizations, payments come specifically from the cash flows of the securitized assets. **Option C: TRUE** - This is a fundamental difference. Covered bond investors have dual recourse (to both the issuer and the cover pool), while securitization investors typically only have recourse to the securitized assets. **Option D: TRUE** - Covered bond pools are dynamic and can be replenished with new assets, while securitization pools are generally static. **Option E: NOT TRUE** - This is the incorrect statement. Both covered bonds and securitizations are subject to regulation. Covered bonds are regulated under banking laws, while securitizations are subject to securities regulations and various regulatory frameworks (such as Basel requirements for banks). Therefore, option E is the one that is NOT a valid difference between covered bonds and true securitizations.
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Each of the following is a valid difference between a covered bond and a true securitization except which is not true?
A
In a covered bond, the cover pool remains on the balance sheet, but in a true securitization, loans (assets) are removed from the balance sheet.
B
In a covered bond, principal and interest are paid from issuer's general cash flows, but in a true securitization, principal and interest are paid from the cash flows of the securitized assets.
C
In a covered bond, investors have dual recourse to both the issuer and the cover pool, but in a true securitization, investors have recourse only to the securitized assets.
D
In a covered bond, the cover pool is dynamic and can be replenished, but in a true securitization, the asset pool is static.
E
Covered bonds are subject to bank regulation, while true securitizations are not regulated.