The FDIC, Federal Reserve, OCC, SEC and CFTC last night announced an addition to the final Volcker Rule regulations that is intended to exempt most bank investments in collateralized debt obligations backed by trust preferred securities.
Under the rule, banks will be able to retain their ownership interests in their TruPS CDOs provided the funds meet certain qualifications. To facilitate compliance, the banking agencies released a list of funds meeting those qualifications that banks can reference. View the list.
Funds not on the list might still qualify for an exemption if they meet the criteria outlined in the rule. Specifically, the bank that holds the fund must believe its composition is “primarily in qualifying TruPS collateral,” which is defined as TruPS issued prior to May 19, 2010, by a bank holding company with less than $15 billion in assets or by a mutual holding company. Additionally, an exempt TruPS CDO must have been created prior to May 19, 2010, and a bank must have acquired its interest in the CDO by Dec. 10, 2013.
The agencies’ interim final rule said that the relief on TruPS CDOs extends to banks’ activities as a sponsor or trustee for the CDOs and that banks can continue to be market makers in TruPS CDOs. Bankers with questions about whether their TruPS CDO holdings qualify can email firstname.lastname@example.org. The agencies will accept comments on the rule for 30 days after it is published in the Federal Register.
“Our initial review of today’s action by the regulators suggests that the Interim Final Rule provides a broad exemption for banks holding trust preferred securities from the original Volcker Rule,” said ABA President and CEO Frank Keating. “ABA will be conducting a more comprehensive review of the amended language and will announce a decision regarding the pending litigation on this issue tomorrow.”
ABA and two community banks prompted the regulators to revisit the rule with a lawsuit filed late last month. State associations and bankers also engaged members of Congress, who introduced ABA-advocated legislation and strongly urged the agencies to craft a solution.
“ABA commends the regulators’ speed and judiciousness in revisiting the impact of the Volcker Rule,” said ABA President and CEO Frank Keating. “Their action today should allow banks to avoid taking millions of dollars in unexpected and unnecessary write-downs. We look forward to continuing to work with the regulators to ensure that the implementation of the 1,000-plus-page Volcker Rule is well reasoned and workable.”
Read the rule.