Volcker Rule Block Request Dropped by Bankers Group

The American Bankers Association dropped its request for a federal judge to temporarily block Volcker Rule restrictions on collateralized debt obligations backed by trust-preferred securities.

The industry group said the temporary restraining order it had requested is no longer needed after regulators said Dec. 27 they are reviewing challenged aspects of the rule, according to a filing yesterday in federal court in Washington. The bankers group isn’t withdrawing the lawsuit it filed Dec. 24 and asked the judge to approve a schedule for it to proceed with seeking to halt the rule’s implementation for the duration of the lawsuit.

The American Bankers Associations, which represents mostly community banks, alleged in its complaint against the Federal Deposit Insurance Corp. and other regulators that small banks will suffer about $600 million in losses because the final version of the Volcker Rule requires them to divest their holdings in some CDOs.

The rule named for former Fed Chairman Paul Volcker, who championed it as an adviser to President Barack Obama, was included in the 2010 Dodd-Frank Law that overhauled U.S. financial regulation as a way to restrict banks’ proprietary trading and other risky bets after the 2008 credit crisis. The Fed has given banks a delay until July 21, 2015, to comply.

The final version approved by the Federal Reserve System, FDIC, Securities and Exchange Commission, Commodity Futures Trading Commission and Office of the Comptroller of the Currency includes CDOs in the definition of covered funds subject to restriction. The Federal Reserve, the FDIC and the OCC are named as defendants in the complaint.

Regulators said Dec. 27 that they were reviewing whether it would be “appropriate and consistent” with the Volcker Rule to allow exemption of TruPS-backed CDOs. They said they will address the matter by Jan. 15.

The case is American Bankers Association v. Federal Deposit Insurance Corp., 13-cv-02050, U.S. District Court, District of Columbia (Washington).

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