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April 8, 2014

Banks Given Two Extra Years to Fully Comply With Volcker Rule

“The Federal Reserve said Monday it will give banks two years of extra time to conform certain debt holdings with the Volcker rule, but stopped short of granting an exception the industry had been seeking.

“The Fed said banks would have two additional years to make sure their collateralized loan obligations don’t fall under the rule’s ban on speculative investments. The decision could force some banks to divest their CLOs, which are complex securities that bundle together corporate loans as well as bonds. The Volcker rule restricts banks from holding bonds as an investment. The rule impacts a handful of large firms, though some smaller banks have said they may be forced to sell CLO holdings as a result of Volcker.

“Elliot Ganz, counsel at the Loan Syndications and Trading Association, said the regulators’ move “doesn’t fix the problem” from the industry’s perspective, though it could mitigate potential losses at some banks forced to divest the securities.

“While the Fed ruling gives the banks more time, Mr. Ganz said it would be difficult for banks to change the ownership terms associated with their CLO holdings in a way that would conform with the Volcker rule. “We certainly hope it’s not the final word. We think the agencies have the rule-making authority to go further than this,” he said.”

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Read full Wall Street Journal article here.

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