By Emily Stephenson
WASHINGTON Jan 14 Five U.S. bank regulatory
agencies on Tuesday approved a tweak to the Volcker rule that
would allow banks to keep interests in certain funds backed by
The change was aimed at easing the concerns of small banks
that they needed to dump certain investments they thought would
be allowed under the rule, losing money in the process.
The American Bankers Association, or ABA, a bank trade
group, sued regulators, and lawmakers from both parties have
backed the banks.
After regulators announced the revision, the bankers group
said it was considering the change and would decide on Wednesday
whether to continue with its lawsuit.
"ABA commends the regulators' speed and judiciousness in
revisiting the impact of the Volcker rule. Their action today
should allow banks to avoid taking millions of dollars in
unexpected and unnecessary write downs," the group said in a
statement on Tuesday.
The Volcker rule, which was required by the 2010 Dodd-Frank
law, prohibits banks from making speculative bets with their own
money and restricts their investments in certain funds. Five
agencies, including the Federal Reserve and the Federal Deposit
Insurance Corp, were involved in writing the rule.
Smaller banks claimed that, as an unintended consequence of
the final version, they would need to dump funds backed by
trust-preferred securities, or TruPS, which have hybrid
characteristics of debt and equity.
On Tuesday, regulators said banks could keep certain
collateralized debt obligations backed by TruPS established
before May 2010 and obtained before the Volcker rule was
finalized last month.
The agencies also said banks can continue to act as market
makers in the TruPS-backed funds. Banks have 30 days to comment
on the changes after which regulators have the power to make
additional tweaks if necessary.