Regulators back down over Volcker CDO provision

|By:, SA News Editor

Federal regulators have decided to ease the Volcker Rule and will allow smaller banks to hold certain CDOs of trust-preferred securities (TRuPS) that they may otherwise have had to sell.

The move comes after the American Bankers Association threatened to sue over the provision, which the industry group said would have forced 275 small banks to take a $600M hit to capital.

The change would apply to any bank that invested in TRuPS-backed CDOs that were issued by banks with under $15B in assets. There are also time conditions attached.

At least three lenders - Zions Bancorp (ZION) being the most prominent - had said prior to the latest ruling that they would have to write down or divest the CDOs immediately at a substantial loss. Zions has assets of $55B.

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