By Sarah N. Lynch
WASHINGTON Dec 23 The American Bankers
Association on Monday initiated a legal challenge to a provision
of the "Volcker rule" that restricts bank ownership of certain
The group filed a petition for review in the U.S. Court of
Appeals for the District of Columbia Circuit, according to court
The court filing, the first legal challenge to the Volcker
rule, says the provision in question is, among other things,
"arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law."
CB&T Bancshares Inc and its Citizens Bank and Trust Co
subsidiary also signed on to the court filing, as did MBT
Financial Corp and its Monroe Bank and Trust Co
Earlier in the day, Frank Keating, the chief executive of
the ABA, wrote in a letter to regulators that the group would
file a challenge seeking emergency relief.
An ABA spokesman said the two-page petition for review would
be followed by more detailed papers, to be filed as early as
Tuesday morning, that would outline the group's legal argument
in greater detail.
At issue is a provision of the rule that prohibits banks
from owning more than 3 percent of any individual hedge fund or
private equity fund, and bars banks from investing more than 3
percent of their total equity capital in private funds.
The banks worry that the provision will force them to sell
their interest in collateralized debt obligations backed by
so-called trust-preferred securities, a type of security that
has characteristics in common with equity and debt instruments.
The ABA's letter, sent to the heads of the Federal Reserve,
Office of the Comptroller of the Currency and the Federal
Deposit Insurance Corp, is the latest back-and-forth public
statements by the trade group and regulators.
It comes just a few days after the Fed, the OCC and the FDIC
issued some guidance to the industry and told the banks they do
not immediately need to sell off the assets in question.
Instead, the banks will have until July 2015 to decide
whether their investments are permissible under the Volcker
"The ABA has informed us of its intention to file suit. We
will review the suit when it is filed, confer with the other
agencies and determine a response," a Fed spokeswoman said.
Spokesmen for the FDIC and OCC both declined to comment.
Named for former Federal Reserve Chairman Paul Volcker, the
Volcker rule was required by the 2010 Dodd-Frank Wall Street
reform law. It seeks to limit the type of risk-taking by banks
that got them into trouble in the 2007-2009 financial crisis.
Since the Volcker Rule was adopted on Dec. 10, some banks
have already made changes.
Florida-based BankUnited Inc, for instance, said it
was selling certain securities, while Zions Bancorp
said it expects to take a one-time charge of $387 million due to
some of its investments that are not allowed under the Volcker