On Friday, March 4, 2016, the Volcker Inter-Agency Group posted a new frequently asked question (FAQ 21), clarifying the capital deduction requirement under the Volcker Rule for investments in Qualifying TruPS CDOs. FAQ 21 confirms that a banking entity is not required to deduct from its tier 1 capital an investment in a Qualifying TruPS CDO retained pursuant to section 248.16(a) of the interim final rule.

Section 13 of the Bank Holding Company Act of 1956 (also known as the Volcker Rule) generally prohibits a banking entity from sponsoring and investing in private equity funds and hedge funds (“covered funds”), subject to a number of exemptions. In December 2013, the Agencies issued a final rule to implement the Volcker Rule. In January 2014, the Agencies issued an interim final rule to add section 248.16 to the final rules. Section 248.16(a) permits banking entities to retain an interest in, or act as sponsor of, an issuer of TruPS CDOs that would meet the definition of a covered fund, so long as: (i) the issuer was established, and the interest was issued, before May 19, 2010; (ii) the banking entity reasonably believes that the offering proceeds received by the issuer were invested primarily in Qualifying TruPS Collateral; and (iii) the banking entity’s interest in the issuer was acquired on or before December 10, 2013 (or acquired in connection with a merger or acquisition of a banking entity that acquired the interest on or before December 10, 2013).