House Financial Services Committee Chairman Jeb Hensarling (R-Texas) and Financial Institutions Subcommittee Chairman Shelley Moore Capito (R-W.Va.) urged financial regulators to address the “unintended consequences” of the Volcker Rule for community banks that invest in collateralized debt obligations backed by trust preferred securities. Senate Banking Committee Ranking Member Mike Crapo (R-Idaho) raised similar concerns in a letter to regulators.
“The intent of this provision of Dodd-Frank was to limit certain activities at large, complex financial institutions,” Hensarling and Capito wrote. “Yet the final rule…contains provisions that will adversely affect Main Street financial institutions.” Under the final rule, CDOs that are backed by TruPs are considered “covered funds” subject to Volcker Rule restrictions. The resulting accounting treatment will cause some banks to face significant capital charges.
In a separate letter, Crapo urged regulators to provide “prompt appropriate guidance” to help firms comply with the Volcker Rule without having to divest TruPS at an “exorbitant loss.”
Read the Hensarling-Capito letter.
Read the Crapo letter.