Federal Agencies Approve Interim Final Rule Authorizing Retention of Interests in and Sponsorship of TruPS-Backed CDOs

The Board of Governors of the Federal Reserve System ("FRB"), the CFTC, the FDIC, the Office of the Comptroller of the Currency and the SEC (the "Agencies") published in the Federal Register an interim final rule permitting banking entities to retain interests in certain collateralized debt obligations ("CDOs") backed primarily by trust preferred securities ("TruPS"), notwithstanding the investment prohibitions of Dodd-Frank Section 619 (the "Volcker Rule"), provided that the TruPS securities in the CDO in question consist predominantly of TruPS issued by a bank with less than $15 billion in assets as of May 19, 2010.

The Agencies believe that the approach adopted in the interim final rule reconciles the policies of the Volcker Rule with its companion provision in Dodd-Frank, Section 171 ("Leverage and Risk-Based Capital Requirements"). The Agencies will accept comment on the interim final rule for 30 days following its publication in the Federal Register.

See:Text of Interim Final Rule. See also: CFTC Chairman Wetjen Statement of Support; CFTC Commissioner O'Malia Statement of Concurrence; SEC Commissioner Piwowar Statement of Dissent; SIFMA Statement.See generally: Cabinet Volcker Materials.Related news: Volcker Lawsuit on TruPS-Backed CDO (December 30, 2013) Agencies Are Reviewing Treatment of Specified Collateralized Debt Obligations under Volcker Rule (December 27, 2013); Banking Agencies Issue FAQ Document Regarding Collateralized Debt Obligations Backed by Trust Preferred Securities (December 20, 2013).