The final Volcker Rule, as issued on December 10, would have a harsh and immediate impact on some 300 community banks that hold collateralized debt obligations (CDOs) backed by trust preferred securities (TruPS).
Washington, D.C. (PRWEB) January 15, 2014
The Independent Community Bankers of America’s® (ICBA) today thanked Congress for legislation that would protect community banks and the communities they serve from the unintended consequences of new rules designed for Wall Street financial firms. In a statement for today’s House Financial Services Subcommittee on Financial Institutions and Consumer Credit hearing, ICBA said legislation introduced by subcommittee Chairman Shelley Moore Capito (R-W.Va.) and committee Chairman Jeb Hensarling (R-Texas) was essential in pressuring the federal banking regulators to release an interim final rule to rectify the Volcker Rule provision. The legislation would minimize the impact of a provision of the Volcker Rule that would have required banks to divest their holdings of certain pools of securities issued before Dec. 10, 2013.
“The final Volcker Rule, as issued on December 10, would have a harsh and immediate impact on some 300 community banks that hold collateralized debt obligations (CDOs) backed by trust preferred securities (TruPS),” ICBA said in the statement. “The December 10 rule would cause an irreversible impact on the earnings and capital of these banks. We know of several community banks that would literally be put out of business if this rule stands.”
Capito and Hensarling’s Fairness for Community Job Creators Act (H.R.3819) would allow banks to retain their holdings of TruPS CDOs issued before Dec. 10, 2013. Prior to yesterday’s interim final rule, the Volcker Rule would have required, in certain instances, that banks divest their holdings of these securities 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, an unanticipated requirement that was not included in the proposed Volcker Rule.
ICBA noted that these securities were structured and sold with the purpose of helping community banks raise capital to serve their communities, and they were highly rated and performed well until the Wall Street financial crisis of 2008. Community banks had every reason to believe they would have the right to own these investments until maturity, ICBA said.
ICBA had repeatedly called for the banking agencies to address the issue. ICBA is reviewing the interim final rule released yesterday to assess its impact and will weigh options for pursuing additional relief measures as necessary.
For more information and to read ICBA’s statement, visit http://www.icba.org.
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.