On March 4, 2016, the US Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Securities and Exchange Commission and Commodity Futures Trading Commission (VR Agencies) issued a Frequently Asked Question (FAQ) to clarify the capital treatment of certain collateralized debt obligations backed by trust preferred securities (TruPS CDOs). Specifically, the FAQ clarified that a banking entity is not required to deduct from its tier 1 capital a qualifying TruPS CDO that is retained under section 248.16(a) of the January 2014 interim final rule published by the VR Agencies. The January 2014 interim final rule provides an exemption that would permit a banking entity to retain an interest in, or act as sponsor of, a covered fund that issues TruPS CDOs subject to certain requirements, including that the issuer must have been established prior to May 19, 2010, and the banking entity’s interest must have been acquired on or before December 10, 2013. However, a banking entity would be required to deduct from tier 1 capital its interests in qualifying TruPS CDOs when it acts as a market maker for the interests of such TruPS CDOs and investments in TruPS CDOS that are covered funds but are otherwise not qualifying TruPS CDOs.
The FAQ is available at: http://www.federalreserve.gov/bankinforeg/volcker-rule/faq.htm#21.