U.S. regulators are set to give banks an exemption from Volcker Rule limits for collateralized debt obligations composed mostly of small-bank securities, according to two people briefed on the agencies’ plans.
The adjustment to the rule, which could come as soon as today, would allow banks to keep CDOs backed by trust-preferred securities while limiting the level of insurance and big-bank content, said the people, who requested anonymity because the regulators haven’t acted….
The exemption would grant grandfathering protection to CDOs held before last month, as long as they meet thresholds ensuring they are largely tied to securities issued by banks with less than $15 billion in assets, the people said. As a so-called interim final rule, it can be implemented while still allowing the agencies to collect comments.
Based on earlier objections from smaller banks, the American Bankers Association had sued to block implementation of the Volcker Rule. Salt Lake City-based Zions Bancorporation — a holder of such CDOs — said it could lose about $387 million under Volcker, a major mandate of the 2010 Dodd-Frank Act’s overhaul of U.S. financial regulation….
Lawmakers from both parties have objected to making small banks sell off the securities. Senators Joe Manchin, a West Virginia Democrat, and Roger Wicker, a Mississippi Republican, introduced a bill yesterday providing grandfathering protection for banks with less than $50 billion in assets. House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican, introduced a similar bill with Representative Shelley Moore Capito, a West Virginia Republican.
U.S. Regulators Said Ready to Ease Volcker CDO Limits for Banks [Bloomberg]
U.S. Regulators Close to Providing Relief to ‘Volcker Rule’ Provision [WSJ]
Earlier: Quixotic Crusade Against Dodd-Frank Has Longer To Run