Darling moves to boost confidence in covered bonds

By Matt Falloon

LONDON (Reuters) - The government plans to encourage more investment in covered bonds and the mortgage-backed securities market by introducing a trustworthy framework for investors and issuers, Chancellor Alistair Darling said on Wednesday.

Confidence in these markets has been tainted by the global credit crunch and Northern Rock crisis, with securitised debt markets freezing over since banks stopped lending to each other in August.

Labour has slipped behind in public opinion polls as its credibility for economic prowess has been damaged and the government is keen to regain the initiative.

"The government will consult on a new 'gold standard' for covered bonds and mortgage backed securities -- which will help not just the housing market but wider economic growth in these uncertain times," Darling told a business audience in London, according to a text of his speech.

"I will report on both of these proposals as part of a wider review looking at housing finance at the Budget next month."

Mortgage lenders have already warned that lending will slump this year unless alternative sources of funding can be found.

Several British lenders have already issued covered bonds, but the lack of a formal framework puts them at a disadvantage to issuers in countries such as Germany and Spain.

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