Financial Services Bulletin: Action At Federal Agencies

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Agencies Approve Interim Final Rules Exempting Certain Interests from the Volcker Rule

On Thursday, January 14, 2013, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission, and the Securities and Exchange Commission approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (“TruPS CDOs”) from the investment prohibitions of Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), known as the Volcker rule.

Adopted pursuant to Section 171 of the Dodd-Frank Act, the interim final rule provides for the grandfathering of trust preferred securities issued before May 19, 2010, by those depository institution holding companies having total consolidated assets of less than $15 billion as of December 31, 2009, and by mutual holding companies established before May 19, 2010.

Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by banking entities if the following qualifications are met:

  • the TruPS CDO was established, and the interest was issued, before May 19, 2010;
  • the banking entity reasonably believes that the offering proceeds received by the TruPS CDO were invested primarily in a trust preferred security or subordinated debt instrument that was issued prior to May 19, 2010, by (i) a mutual holding company, or (ii) a depository institution holding company that as of the end of any reporting period within 12 months immediately preceding the issuance of such trust preferred security or subordinated debt instrument, had total consolidated assets of less than $15 billion; and
  • the banking entity's interest in the TruPS CDO was acquired on or before December 10, 2013 (the date the agencies issued final rules implementing Section 619 of the Dodd-Frank Act).

The interim final rule also provides clarification that the relief relating to these TruPS CDOs extends to activities of the banking entity as a sponsor or trustee for securitizations of these instruments and that banking entities may continue to act as market makers in TruPS CDOs.

Read the Federal Reserve Board press release

Read the Federal Deposit Insurance Corporation press release

Read the Office of the Comptroller of the Currency press release

Read the Securities and Exchange Commission press release

Topics:  Banks, CFTC, Collateralized Debt Obligations, Dodd-Frank, FDIC, Federal Reserve, OCC, Proprietary Trading, SEC, Trust Preferred Securities, Volcker Rule

Published In: General Business Updates, Finance & Banking Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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