Alert December 30, 2013

Federal Agencies Reviewing Treatment under Volcker Rule of Collateralized Debt Obligations Backed by TruPS

On December 27, 2013, the FRB, FDIC, OCC and SEC (the “Agencies”) jointly issued a statement which advised financial institutions that the Agencies were reviewing, in response to concerns expressed by community banks and banking trade associations,

“whether it is appropriate and consistent with the provisions of the Dodd-Frank Act not to subject pooled investment vehicles for [Trust Preferred Securities (TruPS)], such as collateralized debt obligations (CDOs) backed by TruPS (TruPS CDOs), to the prohibitions on ownership of covered funds in section 619 of the Dodd-Frank Act.” 

The Agencies note that they wish to avoid any inconsistency with the relief provided in section 171 of the Dodd-Frank Act to depository institution holding companies with total consolidated assets of less than $15 billion.  Section 171 of the Dodd-Frank Act grandfathered holdings of certain TruPS CDOs for purposes of such institutions’ calculations of regulatory capital.

The Agencies said they expect to address this issue no later than January 15, 2014.  The Agencies’ prior guidance on this issue was discussed in the December 23, 2013 Financial Services Alert.