WASHINGTON A group of Republican senators introduced a bill Thursday evening to address concerns about treatment under the Volcker Rule of collateralized debt obligations backed by trust-preferred securities.
The legislation, introduced by Sens. Mark Kirk, R-Ill., Mike Crapo, R-Idaho, Pat Toomey, R-Pa., John Barrasso, R-Wyo., Mike Enzi, R-Wyo., Jerry Moran, R-Kan., and Roger Wicker, R-Miss., would provide a broad exemption for Trups-backed CDOs, allowing banks to avoid writing off millions of dollars under the Volcker Rule. The effort comes one day after Reps. Jeb Hensarling, R-Texas, and Shelley Moore Capito, R-W.Va., introduced similar legislation in the House.
"Community banks were promised that this rule would not impact them, and I am disappointed by the requirements that the rule is imposing upon nearly 300 of our nation's community banks," said Kirk in a press release. "Agree or disagree with the intent of the Volcker Rule, with a problem of this magnitude I want to reiterate to the federal regulators as they contemplate a fix for this provision, it needs to be the best and most responsible fix available."
The issue came to a head last month, following the Dec. 10 release of the Volcker Rule, which indicated that certain Trups-backed CDOs would be covered. Several banks quickly announced plans to write down or sell the assets immediately to address accounting concerns related to the rule, in some cases at a substantial loss, though the rule is not set to go into effect until July 2015.
Regulators are said to be considering at least two possible fixes, either issuing a general exemption to CDOs backed by Trups or limiting the provision to community banks with less than $15 billion in assets. They are expected to issue an interim final rule by Jan. 15, if not sooner.
Legislative activity on the issue helps to signal where lawmakers stand and could be used to bypass whatever decision regulators come to if the industry remains unsatisfied with the fix put forward by the agencies.
But efforts on Capitol Hill have begun to fracture down party lines, with some Democrats pushing for a more limited exemption for banks with under $15 billion in assets. A coalition of House Democrats urged regulators to adopt such a measure in a letter earlier this week.
"The partisan split may make it tougher to get a quick legislative fix though it doesn't mean legislation is dead," said Jaret Seiberg, a policy analyst for Guggenheim, in a note to clients on Friday. "Rather we believe this is the type of measure that could find its way into a regulatory relief bill later this year."
Senate Republicans pushed back on the idea of a limited exemption in a press release for their bill, saying that a size limit "hurts banks of all sizes." Industry groups have also been relatively united in urging a broader exemption to the Volcker rule provision, warning that a cut-off could damage the Trups market.