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Volcker Rule

Banking Agencies Announce Review of Volcker Rule and TruPS CDOs; Year End Accounting Treatment Will Require Thorough Analysis

In developments late Friday, banking regulators released a joint statement that they are reviewing the final Volcker Rule to determine if corrections are deemed appropriate based on potential conflicts with Congressional intent.  The agencies are seeking resolution of the matter by January 15, 2014.  The accounting staffs of the banking agencies have included in the statement their belief that any conclusions reached in January 2014 before the issuance of the annual 2013 financial statements and regulatory reports should be considered when preparing those financial statements and such consideration is consistent with generally accepted accounting principles.

ICBA reminds community banks with investments in collateralized debt obligations backed by TruPS that they should not automatically conclude that their investments are other-than-temporarily impaired at year end.  Banks will need to conduct a thorough analysis of their investment holdings considering all relevant factors including whether the investment meets the definition of a "covered fund" under the final Volcker Rule, whether a restructuring is possible that would provide an exclusion that avoids the disposition requirement, will the investment meet the definition of an ownership interest, and do recent market recoveries of TruPS CDO fair values signal that unrealized market losses will be recovered before ultimate disposition is required.  The exhaustive analysis will be a labor intensive effort requiring the bank's independent accountants to provide much of the necessary topical considerations.  It is expected that banks will launch intensive reviews of these investments that will continue well into the new year up until the filing of the final call report for 2013.

Affected banks should note the recently published FAQ by the banking agencies on appropriate considerations when assessing the impact of the Final Volcker Rule on their CDOs backed by TruPS.  The guidance can be found here.  ICBA continues to actively seek appropriate resolution to the profound impact of the final Volcker Rule on community banks both through regulatory and legislative paths.  In ICBA's latest letter to the regulators, we urged the regulators to suspend the applicability of the Volcker Rule to investments in TruPS CDOs temporarily for a period of 60-90 days due to the many ambiguities and questions concerning how the new rules should be applied, and urged that debt-like investments in TruPS CDOs be exempted from the rule.  Please read ICBA's latest letter to the regulators.  Additionally, the FDIC is reaching out to the impacted banks to provide guidance and support where needed.    

Stay tuned to ICBA for the latest developments involving the Volcker Rule and its impact on community banks that hold TruPS CDO investments.

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