Despite the fact that the Volcker Rule was designed to rein in the excessively risky behavior on Wall Street, regulators’ final rule would have negative consequences for Main Street.
Washington, D.C. (PRWEB) January 10, 2014
The Independent Community Bankers of America® (ICBA) said it supports new Senate legislation that would protect community banks and the communities they serve from the unintended consequences of new Wall Street regulations. Legislation introduced would prohibit the Volcker Rule from requiring banks to divest their holdings of certain pools of securities issued before Dec. 10, 2013, which would negatively affect community banks and local economies. ICBA urges senators to quickly support and pass the legislation.
The bill would prevent community banks from having to write down the value of collateralized debt obligations (CDOs) backed by trust-preferred securities (TruPS). The Volcker rule requires, in certain instances, that banks divest their holdings of CDO TruPS and write down these investments under “other than temporary impairment” accounting rules. For some banks, writing down these securities could result in a permanent loss of capital. The legislation, which was introduced by Senate Banking Committee member Mark Kirk (R-Ill.) and Ranking Member Mike Crapo (R-Idaho) and by Sens. John Barrasso (R-Wyo.), Mike Enzi (R-Wyo.), Jerry Moran (R-Kan.), Patrick Toomey (R-Pa.) and Roger Wicker (R-Miss.), would minimize the impact of the rule on community banks that hold these securities.
“Despite the fact that the Volcker Rule was designed to rein in the excessively risky behavior on Wall Street, regulators’ final rule would have negative consequences for Main Street,” ICBA President and CEO Camden R. Fine said. “ICBA strongly supports this legislation to prevent the rule from negatively affecting economic stability in our communities. We urge prompt bipartisan support and passage of this important effort.”
Banking regulators recently issued final regulations implementing the Volcker Rule, which bars depository institutions and their affiliates from engaging in short-term proprietary trading for their own account or owning, sponsoring or having certain relationships with hedge funds or private equity funds. Unfortunately, the final Volcker Rule indicates that these pools of securities securities could be prohibited by the rule, which would require even community banks to divest their holdings by July 2015 and to immediately recognize the impairment under accounting standards. If community banks are forced to write down these investments rather than holding them to maturity, these institutions may have to do so at “fire sale” prices that could result in a permanent loss of capital.
ICBA has repeatedly called for the federal banking agencies to address the issue and has also called on Congress to seek a fix and, if necessary, to hold committee hearings on community bank concerns with the issue. The association will continue to provide input to Senate and House legislative efforts to address the issue and to work with regulators to implement a permanent solution.
The Independent Community Bankers of America®, the nation’s voice for nearly 7,000 community banks of all sizes and charter types, is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education and high-quality products and services. For more information, visit http://www.icba.org.