Dec 19 - The Independent Community Bankers of America continues to press Congress and the banking regulators to fix the Volcker Rule to stave off unintended and detrimental consequences to many community banks. ICBA has again called on Congress to help ensure the federal banking regulators issue critically needed guidance clarifying that the Volcker Rule does not require banks to permanently write down their holdings of collateralized debt obligations backed by trust-preferred securities, pools of securities issued by banks to raise capital, prior to year-end. ICBA has sent a letter urging the regulators to issue such guidance.
In its message to Capitol Hill, ICBA called on lawmakers to seek the proper fix to the harmful TruPS provision in the Volcker Rule and, if necessary, hold committee hearings on the issue and community banks’ concerns.
“As you know, the intent of the Volcker Rule was to prohibit proprietary trading by the large banks and the ownership of hedge funds and private equity funds,” ICBA wrote in its letter to regulators. “How did this intent ever evolve into including the divestiture of legitimate portfolio holdings of community banks?”
Banking regulators recently issued final regulations implementing the Volcker Rule, which bars depository institutions and their affiliates from engaging in short-term proprietary trading for their own account. It also prohibits these institutions from owning, sponsoring or having certain relationships with hedge funds or private equity funds.
Unfortunately, the final Volcker Rule requires all banks, including community banks, to divest their holdings of CDOs backed by TruPS by July 2015, which would negatively affect many community banks. If community banks are forced to write these investments down, they may have to do so at “fire sale” prices that would result in a permanent loss of capital, rather than holding these investments to maturity.