14.1 For covered bonds, an exposure to the issuing Bank must be assigned equal to 100% of the nominal value of the Bank's covered bond holding, or, where the covered bond satisfies the conditions set out in Article 14.2 below, an exposure to the issuing Bank of at least 20% of the nominal value of the Bank's covered bond holding.

14.2 To be eligible to be assigned an exposure of less than 100%, a covered bond must satisfy all of the following conditions:

14.2.1 It must meet the definition of a covered bond: Covered bonds are bonds issued by a bank or mortgage institution and are subject by law to specific supervision designed to protect bond holders. Proceeds deriving from the issue of these bonds must be invested in conformity with the law in assets which, during the whole period of the validity of the bonds, are capable of covering claims attached to the bonds and which, in the event of the failure of the issuer, would be used on a priority basis for the reimbursement of the principal and payment of the accrued interest.

14.2.2 The pool of underlying assets must consist exclusively of:

14.2.2.1 Claims on, or guaranteed by, sovereigns, their central banks, public sector entities or multilateral development banks;

14.2.2.2 Claims secured by mortgages on residential real estate that would qualify for a 35% or lower risk weight under the standardized approach for credit risk and having a loan-to-value ratio of 80% or lower; and/or

14.2.2.3 Claims secured by commercial real estate that would qualify for the 100% or lower risk-weight under the standardized approach for credit risk and with a loan-to-value of 60% or lower.

14.2.3 The nominal value of the pool of assets assigned to the covered bond by its issuer should exceed its nominal outstanding value by at least 10%. This requirement can be met also in jurisdictions where the former 10% is not required by law, however in that case the issuing bank needs to regularly publicly disclose that their covered pool meets the 10% requirement in practice.

This 10% additional collateral may also include substitution assets, such as cash or short term secure assets, and derivatives entered into to hedge risks arising in the covered bond programme.

14.2.4 The requirements regarding maximum loan-to-value ratio for residential and commercial real estate referred to in Article 14.2.2 must be met following an objective market value of the collateral and frequent revaluation of the collateral.