U.S. Treasury Secretary Henry Paulson has announced measures designed to help the development of a covered bond market in the United States to provide a new source of mortgage financing.

Paulson said Monday that officials have been looking broadly for ways to increase the availability and lower the cost of mortgage financing to accelerate the return of normal home buying and refinancing activity.

“One option we have looked at extensively is covered bonds, which are a $3 trillion market used widely in Europe for mortgage funding. I believe covered bonds have the potential to increase mortgage financing, improve underwriting standards, and strengthen U.S. financial institutions by providing a new funding source that will diversify their overall portfolio,” he said.

Treasury has been working with its regulatory counterparts to look at ways to support the emergence of the covered bond market in the US. To that end, it published a best practices guide for U.S. residential covered bonds that outlines practices that will promote covered bond market simplicity and homogeneity, using high quality mortgages as collateral.

In addition, Bank of America, Citi, J.P. Morgan Chase and Wells Fargo & Co. announced their support for regulatory efforts to promote the development of a U.S. covered bond market. In addition to the Treasury announcement, the Federal Deposit Insurance Corporation issued a policy statement on the issue on July 15.

“These statements help provide the legal, regulatory, and market framework necessary for the development of a U.S. covered bond market. We believe a robust U.S. covered bond market would provide an additional stable and cost effective funding source for banks to originate and hold mortgages on their balance sheet. We look forward to being leading issuers as the U.S. covered bond market develops, with programs consistent with the FDIC and Treasury statements,” they said.

Also, Tradeweb, an over-the-counter online marketplace owned jointly by Thomson Reuters and 10 leading global dealers, announced today that it is planning to introduce an online market for covered bonds backed by pools of U.S. residential mortgages.

“Liquidity is the lifeblood of the financial markets. By creating this new marketplace, Tradeweb is pooling the demand from banks and institutional investors for a more effective way to trade mortgage assets,” said Billy Hult, managing director and head of U.S. Markets at Tradeweb. “We have proven in the European market that the online markets provide an efficient venue for trading covered bonds. We look forward to achieving the same success in the U.S. market.”