As executives of buy-side financial institutions are likely well aware, the Volcker Rule has been implemented by regulators as a form of protection against major banking companies and entities from engaging in risky trade deals. And while the language of the rule is meant to concern primarily large banks, the Independent Community Bankers of America say that more clarification is warranted.
In a letter submitted to federal regulators, the ICBA indicated that it would like the Volcker Rule to be more specific with regards to community bank holdings of collateralized debt obligations that are backed by trust-preferred securities. For example, it asked that the interim rule make an exemption for all community banks that engage in these types of loans in order to prevent community banks from making write-downs that they don’t need to perform.
“The Volcker Rule was intended to prevent large financial institutions from undertaking risky investments,” the letter stated. “It was never the intent of Congress to cover TRUPS CDOs or CLOs as ‘covered funds’ under the Volcker Rule, nor was it the intent of Congress for the Volcker Rule to adversely impact community banks.”
Whatever decision is made as it pertains to regulators expanding the exemption of community banks, study analysis suggests that financial records management may be adversely affected as a result of the Volcker Rule. ICBA discovered recently that 6 percent of affected community banks would have to unload all of their TRUPS CDOs under the rule’s present construction. Meanwhile, 16 percent of community banks could only keep some of their holdings. What could change that for the better is if the exemption definition were broadened.
Volcker Rule still a work in progress
Since the introduction of the Volcker Rule, it’s gone through a number of changes implemented by regulators within the Federal Reserve, Securities and Exchange Commission as well as the Federal Deposit Insured Corporation, among others. For example, in January, these and two other agencies approved an interim final rule that enables banking entities to retain interests in some collateralized debt obligations, provided that they meet, or adequately address, specific qualifications. Had the interim rule not been implemented, banking executives say that institutions could have suffered serious losses of capital.
ICBA also sent a letter to regulators in order to be more flexible with the Collins Amendment, which is another component of the Dodd-Frank Act. The amendment is meant to impose stricter regulatory capital requirements on all financial institutions while at the same time preventing the holding of certain securities and cumulative perpetual preferred stock, according to Standard and Poor’s. This rule was added to the Dodd-Frank Act because regulators determined that the securities may not be able to recover as quickly compared to other Tier 1 capital that underwent a loss.
The upcoming year, based on the heightened regulatory environment, could be one where buy-side financial institutions put a focus on compliance management like never before. As Forbes reported, the Volcker Rule was in the works starting in 2010, resulting in a 964-page document that outlined what reporting requirements are necessary to perform. One of the ways executives can fulfill what’s required of them is by going over what compliance systems are already in place in order to see where the weaknesses lie and how they can be strengthened.
- RIMES adds ESG solution to its Managed Data Services
- RIMES Lists Its Managed Data Services on Datarade Data Marketplace to Meet Surge in Global Demand for ETF Intelligence
- Fitch Ratings ESG Relevance Scores Data now available on RIMES
- RIMES’ transformational new Lean Data Management solution wins at the Waters Rankings and HFM European Technology Awards
- How Chief Data Officers Succeed in a Data-Driven Age