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Regulators back down over Volcker CDO provision

  • 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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Comments (3)
  • Voice of common sense
    , contributor
    Comments (119) | Send Message
     
    The lackey regulators always back down.
    15 Jan, 02:55 AM Reply Like
  • Michael Nau
    , contributor
    Comments (972) | Send Message
     
    The worst part is that the underlying economic reality hasn't changed, the securities in question really are worth less than par. Its all about accounting earnings.
    15 Jan, 06:37 AM Reply Like
  • Ron Reed
    , contributor
    Comments (283) | Send Message
     
    FWIW, if you are investing in CDO's you are given the rating up front, providing that the bank acts IAW its own charter and not with customer funds that are FDIC insured, they can do what they please. Less gov't interference is what is needed. The Volker rule is so complex that most small banks will never have the assets to even try to fully understand it, much less comply with it. So, they will be fined and folded into larger banks and that is not good for anyone. It reduces competition and just adds to the 'much too big to fail' banks that the gov't is creating. This is just a farce of so called public interest.
    15 Jan, 08:04 AM Reply Like
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