Regulators averted a banking crisis for smaller institutions on Tuesday, January 14, when they approved an interim rule allowing banks to retain ownership in collateralized debt obligations backed by trust-preferred securities (TrPS) on the condition that:
- The bank’s ownership of CDOs was established before May 19, 2010.
- The bank that had less than $15 million in assets within the 12 months before issuing the securities, or had been issued before that date by a mutual holding company.
This rule, approved by the Fed, Commodity Futures Trading Commission, FDIC, OCC, and the Securities and Exchange Commission, appears to provide a broad exemption for banks holding the securities. It tweaks a part of the Volcker Rule that would have caused a significant write-down in banks investment portfolios, reducing their capital.
The above is a follow-up to last week’s post entitled “A Potential Banking Crisis Unexpectedly Emerges“.
