U.S. banks are seeking to limit the reach of the Volcker Rule by challenging its definition of what it means to own a hedge fund or private-equity fund.
The opening gambit was made by the American Bankers Association (ABA), the industry’s biggest lobbying group, which said in a federal lawsuit filed last month on behalf of community banks that regulators had defined too broadly what it means to have an ownership stake. A week later, four other organizations, including the Financial Services Roundtable, sent a letter to bank-supervisory agencies making the same point.
His organization didn’t rush to sue like the ABA because there wasn’t an immediate loss for holders of CLOs, which are mostly marked to market prices on balance sheets, he said. Many banks hold TruPS CDOs in an account that allows them to ignore market values as long as they keep the securities to maturity.
The controversy over the definition of ownership erupted when Zions Bancorporation, a Salt Lake City-based lender with $55 billion in assets, said on Dec. 16 that it would take a hit of $387 million on its TruPS CDO holdings because the Volcker Rule would force their sale within two years. Zions’ $1.2 billion portfolio is the highest among banks, according to figures compiled by brokerage firm Sterne Agee & Leach Inc.