On Jan. 31, 2014, five federal agencies each adopted a common interim final rule (Interim Final Rule) that would permit banking entities to retain investments in collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs). Many community banks used TruPS CDOs to access capital markets for regulatory capital prior to May 19, 2010. Without the Interim Final Rule, the Volcker Rule would require community banks to divest certain pooled investment vehicles, including TruPS CDOs, and potentially reduce capital ratios due to losses related to forced sales of TruPS CDOs. Additional information regarding TruPS CDOs and the Volcker Rule can be found in McGuireWoods’ recent legal update on the Interim Final Rule.
The Interim Final Rule is effective on April 1, 2014. The agencies are seeking comment on or before March 3, 2014.