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Friday, February 14, 2014

House Members Call for Volcker CLO Relief

Seventeen House Democrats -- including House Financial Services Committee Ranking Member Maxine Waters (D-Calif.) -- have asked banking regulators to offer interpretive guidance clarifying that debt interests in collateralized loan obligations are not considered equity interests and thus "covered funds" under the Volcker Rule.

"The distinction between debt and equity securities is particularly complicated in the context of securitizations such as CLOs," the letter said. "We urge the agencies to find a solution that, to the extent possible, avoids the need for unduly disruptive, market-wide renegotiations of existing CLOs."

Sen. Mark Kirk (R-Ill.) and several Republican colleagues introduced a bill in January that would address the Volcker Rule's treatment of CLOs. Many banks invest in CLOs as lending vehicles to meet borrower needs, and bankers are concerned that subjecting them to the Volcker Rule could limit their ability to satisfy customers’ credit needs in the future and impair the market for CLOs currently on their books.

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