By Douwe Miedema
WASHINGTON Dec 27 U.S. bank regulators said on
Friday they would consider allowing banks to hold on to certain
complex securities despite a new rule limiting risky
The announcement came after lenders warned in a lawsuit of
hefty losses from the so-called Volcker rule.
The Volcker rule prohibits banks from owning hedge funds or
private equity funds to reduce risk, but the ban included a type
of security community banks regard as harmless.
The regulators said they would now reconsider whether these
instruments could be made exempt and would make a decision no
later than Jan. 15.
A change would mark the first finessing of the Volcker rule,
one of the most hotly debated provisions of the Dodd-Frank law,
which was designed to overhaul Wall Street after the devastating
financial crisis of 2007-09.
Banks had argued in court that they needed a decision before
the end of the year because accounting rules would force them to
write down $600 million in capital this quarter if they knew
they had to sell the securities later.
But the regulators indicated that a decision by the middle
of January was early enough.
"The accounting staffs of the agencies believe that ... any
actions in January 2014 that occur before the issuance of
December 31, 2013, financial reports should be considered when
preparing those financial reports," they said.
Later on Friday, the two parties said they agreed to take
more time to sort out the issue, filing a joint motion in the
court that gave the regulators until Jan. 17 to react, and the
banks until Jan. 23 to reply.
Originally, the deadline for regulators had been set for
Monday, and that for banks on Tuesday.
At stake are so-called collateralized debt obligations
backed by trust preferred securities - or TruPS CDOs - which
have hybrid characteristics of both debt and equity and can get
a favorable tax treatment.
The Federal Reserve, the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation had
earlier told banks they did not immediately need to sell the
assets in question.
The case was filed by the American Bankers Association, in
conjunction with CB&T Bancshares Inc and its Citizens Bank and
Trust Co subsidiary, as well as MBT Financial Corp and
its Monroe Bank and Trust Co subsidiary.
"ABA appreciates the regulators taking this important step,
and our experts are studying to see if the affected banks indeed
find immediate interim relief from this action," ABA president
Frank Keating said in a statement.