Volcker Rule CDO Limits Eased

Regulators announce they'll allow banks to keep certain CDOs; banks avoid losses and CDO market avoids mass selloff. CLOs remain off-limits.

U.S. regulators will grant banks an exemption from Volcker Rule limits for collateralized debt obligations (CDOs) composed mostly of small-bank securities, according to a statement from regulators today.

The adjustment to the rule would allow banks to keep CDOs backed by trust-preferred securities (TruPS) established before May 19, 2010, and obtained by Dec. 10, 2013, five financial agencies said in a joint news release.

Lawmakers from both parties had 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.

Industry representatives will testify before the House Financial Services Committee tomorrow on the Volcker Rule’s impact, concentrating much of their criticism on the CLO treatment, according to their prepared testimony.

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