FDIC Issues Guidance on Volcker Rule and Investments in Covered Funds

The FDIC issued guidance to FDIC-supervised institutions on the interaction between the regulatory capital rule and the final rule that implements Section 13 (Prohibitions on Proprietary Trading and Certain Relationships with Hedge Funds and Private Equity Funds) of the Bank Holding Company Act (Volcker Rule).

Highlights of the guidance include the following:

• The Volcker Rule prohibits banking organizations from holding ownership interests in covered funds after the relevant conformance period, with the exception of ownership interests that arise from sponsoring covered funds totaling less than three percent of tier 1.

• Under the Rule, investments in covered funds that were purchased or acquired after December 31, 2013 must be deducted from tier 1 capital after the initial conformance period that ended on July 21, 2015.

• The Board of Governors of the Federal Reserve System has indicated that the conformance period for legacy covered funds will end in July 2017. Additional information and reporting instructions regarding these funds will be made available at a future date.

• The FDIC's guidance on the Deduction Methodology for Investments in Volcker Rule Covered Funds (see related link) describes the methodology for taking capital deductions pursuant to the Volcker Rule and how that methodology relates to deductions required under the regulatory capital rule for investments in the capital instruments of unconsolidated financial institutions. The mechanics are intended to ensure that no double deductions will be taken from tier 1 capital.