U.S. Regulators Close to Providing Relief to 'Volcker Rule' Provision; Banks Wouldn't Have to Divest Certain Securities Under a New Rule
WASHINGTON--Regulators are close to issuing a rule designed to provide relief to banks that want to own certain types of debt investments without running afoul of the so-called Volcker rule, according to people briefed on the matter.</br></br>Regulatory agencies are planning to issue an interim final rule this week that would allow banks to hold some collateralized debt obligations, or CDOs, as long as they meet certain criteria, such as containing specific types of loans, these people said.</br></br>Regulators haven't made a final decision, but people familiar with the matter said the agencies want to allow most small banks to avoid having to divest the securities, though the impact could vary by institution. Regulators have promised a decision on the Volcker rule provision by Wednesday.</br></br>The change under consideration comes in response to pressure from Capitol Hill and a lawsuit from the banking industry, which last month challenged the Volcker rule's restriction on banks' holding of CDOs made up of trust-preferred securities. The CDOs at issue often are made up of debt issued by banks that was then bundled together and sold to investors, including other banks.</br></br>The Dec. 10 release of the Volcker rule, which bans banks from making certain investments, took some small firms by surprise because it applied the ban to certain CDO holdings. The banks sued on Dec. 24, and several members of Congress wrote letters asking regulators to reconsider.