Banking Agencies Issue FAQ Document Regarding Collateralized Debt Obligations Backed by Trust Preferred Securities

Three federal financial institution regulatory agencies including the Board of Governors of the Federal Reserve System ("FRB"), the Office of the Comptroller of the Currency ("OCC"), and the Federal Deposit Insurance Company ("FDIC") provided clarification and guidance to banking entities regarding investments in "Covered Funds" (as defined in the Volcker Rule), and how collateralized debt obligations backed by trust preferred securities ("TruPS CDOs") should be treated under the Volcker Rule.

The FAQ addresses the following principal questions: (i) whether a TruPS CDO is a Covered Fund, (ii) whether investments by a banking entity in a TruPS CDO should be considered "ownership interests," and (iii) what a banking entity should do if it is deemed to have an ownership interest in a Covered Fund in light of the prior two questions. The agencies stated that the FAQ is intended to clarify that banking entities which have ownership interests that will be prohibited in TruPS CDOs are not required to sell these holdings immediately under the final rules, but instead may use the conformance period to determine if they can be brought into conformance by the end of the conformance period (July 21, 2015).

See: FAQ Regarding Collateralized Debt Obligations Backed by Trust Preferred Securities under the Final Volcker Rule; Joint-Agency Press Release.See generally: Volcker Page on the Cabinet.