On January 14, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Securities and Exchange Commission and the Commodity Futures Trading Commission approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs), notwithstanding the investment prohibitions of Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker Rule.
The interim final rule was published in the Federal Register on January 31, and became effective on April 1. The OCC, together with the other rule-writing agencies, solicited comments on the interim final rule through March 3, 2014.
The interim final rule permits banking entities—including national banks, federal savings associations, and federal branches and agencies of foreign banks—to retain an interest in a TruPS CDO if the following qualifications are met:
- the TruPS CDO was established and the interest was issued before May 19, 2010;
- the banking entity reasonably believes that the offering proceeds received by the TruPS CDO were invested primarily in qualifying TruPS collateral and
- the banking entity’s interest in the TruPS CDO was acquired on or before December 10, 2013, the date when the agencies issued final rules implementing Section 619 of Dodd-Frank.
Qualified TruPS collateral includes any trust preferred security or subordinated debt instrument that was
- issued before May 19, 2010, by a depository institution holding company that, as of the end of any reporting period within the 12 months immediately preceding the issuance of such trust preferred security or subordinated debt instrument, had total consolidated assets of less than $15 billion; or
- issued before May 19, 2010, by a mutual holding company.
To help community banks identify which CDO issuances remain permissible, the OCC, the FDIC, and the FRB also have issued a nonexclusive list of TruPS CDOs that meet the requirements of the interim final rule.