EUROCATALYST 2004 was held in Berlin to draw attention to the weakened status of German banks and its implications across the EU banking sector. As the world’s third-largest economy (in terms of GDP) in 2004, the German economy continued to bear the weight of economic integration between East and West Germany. Exacerbating the burden, its three parallel banking systems (public, cooperative and private) that previously defined the strength of the German banking sector were involved in a Darwinian struggle for survival. The event theme that year was “Growth, Integration and Differentiation in European Mortgage Markets”. In my opening comments, I wrote, “The impact of globalization and the free flow of capital is the most appropriate context in which to understand the vast divide between housing (as a local endeavor) and its funding (an increasingly global endeavor). From a balance sheet perspective, the asset side remains local while the liability side can now be offset globally. However, as risk continues to be dispersed among a global investor base, at what point does that risk become so concentrated that it poses systemic risk to the global financial system?”

That year, as sub-prime products began to proliferate across European markets and house prices continued their lofty ascent, we began to emphasize the need for greater attention to the European servicing sector in preparation for large volumes of mortgage defaults. By this time, the animosity between MBS and covered bond issuers was so overt that we opened the debate on funding to the song, “Two Tribes (go to war)”.

The most remarkable session “10/20/50: A Blueprint for Mortgage Funding” was a monumental collaborative effort that took six months to put together. In collaboration with Dominic Swan at HSBC, Will Ross and Tim Skeet at ABN Amro, Hoesli Labhart at Citigroup and Kris Wulteputte from the Dutch-based SNS Bank, the presentation was the first time that a balanced approach to mortgage funding incorporating both covered bonds and MBS had ever been proposed. In the session, Wulteputte expressed the most famous quote from the event when he pleaded with the EU’s Gerald Dillenberg, “Don’t take away my funding DNA!”

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