John At The Center

Covered bonds do help to resolve some of the difficulties associated with the originate-to-distribute model.  The on-balance-sheet nature of covered bonds means that the issuing banks are exposed to the credit quality of the underlying assets, a feature that better aligns the incentives of investors and mortgage lenders than does the originate-to-distribute model of mortgage securitization.  The cover pool assets are typically actively managed–non-performing assets are replaced with similar, but performing assets–ensuring that high-quality assets are in the cover pool at all times and providing a mechanism for loan modifications and workouts.  The structure used for such bonds tends to be fairly simple and transparent.  These features, together with the demonstrated success of covered bonds in other countries, make this approach attractive.  That said, given longstanding features of the U.S. system such as the prominent role of the Federal Home Loan Banks, covered bonds may remain an unattractive option to U.S. banks.

From his speech.  He actually offers three alternatives– privatization, covered bonds, and an even more publicly regulated GSE.