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Thursday, February 6, 2014

Regulators Leave Door Open on CLO Concerns

Federal regulators signaled that they may revisit the Volcker Rule’s treatment of collateralized loan obligations, Federal Reserve Governor Daniel Tarullo said during a House Financial Services Committee hearing. CLOs are “at the top of the list” for the interagency working group on Volcker Rule implementation, he explained.

Debt securities of CLOs were included in the Volcker Rule’s prohibition on covered funds. Many banks invest in CLOs as a diversified way to participate in large commercial loans. Bankers are concerned that prohibiting them may unnecessarily restrict normal loan participating opportunities and impair the market for CLOs currently on their books.

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