Magazine article American Banker

Regulators Weighing Key Exemption from Volcker Rule

Magazine article American Banker

Regulators Weighing Key Exemption from Volcker Rule

Article excerpt

Byline: Rob Blackwell

WASHINGTON -- Federal banking regulators are exploring whether to exempt collateralized debt obligations backed by trust-preferred securities from the Volcker Rule, the agencies said on Friday.

The announcement was the most recent in a rapidly developing stand-off between banks and regulators over the controversial rule, which is designed to ban proprietary trading and prevent banks from investing in hedge and equity funds.

The issue has already sparked a lawsuit by the American Bankers Association, which is seeking emergency court relief before some community banks may be forced to take millions of dollars in write-downs on certain CDOs at yearend. Regulators are due to respond to that lawsuit by Monday morning.

Prior to that, however, the agencies acknowledged Friday they are looking to see whether it would be "appropriate and consistent" with the Dodd-Frank Act to carve out all CDOs backed by Trups from the Volcker Rule.

"The agencies intend to address the matter no later than January 15, 2014," the regulators said. "The accounting staffs of the agencies believe that, consistent with generally accepted accounting principles, any actions in January 2014 that occur before the issuance of Dec. 31, 2013, financial reports should be considered when preparing those financial reports."

At issue are whether banks are required to shed CDOs that are made up of trust-preferred holdings and how quickly. Under the final Volcker Rule issued two weeks ago, regulators said that certain CDOs that relied on a particular legal exemption from investment registration might be restricted. …

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