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Tuesday, April 8, 2014

Fed Delays Volcker CLO Prohibition

The Federal Reserve said it would extend for two years the compliance period for the Volcker Rule’s prohibition on ownership interests in collateralized loan obligations. Banks now have until July 21, 2017, to divest interests in prohibited CLOs, provided they were in place by the end of 2013. The Fed said:

A banking entity would not have to include ownership interests in CLOs to determine its investment limits under the final rule, and a banking entity would not be required to deduct CLO investments from tier 1 capital under the final rule until the end of the relevant conformance period.

ABA President and CEO Frank Keating said he was “puzzled” that CLOs remain covered by the Volcker Rule. “The extension doesn’t address the underlying problem,” he said. “These instruments and others like them were created and exist to meet customer needs, not for proprietary trading purposes nor are they investments in hedge funds.”

ABA has been aggressively advocating for a solution to the Volcker CLO issue. In a bipartisan March vote, the House Financial Services Committee passed H.R. 4167, which would largely protect preexisting bank investments in CLOs from Volcker Rule restrictions. Sen. Mark Kirk (R-Ill.) in January introduced a similar bill.

Read the Fed's statement.

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