U.S. regulators are set to give banks an exemption from Volcker Rule limits for collateralized debt obligations composed mostly of small-bank securities, Bloomberg News reported yesterday. The adjustment to the rule would allow banks to keep CDOs backed by trust-preferred securities while limiting the level of insurance and big-bank content. After regulators approved the Volcker Rule on Dec. 10, smaller U.S. banks said that it could force them to take as much as $600 million in losses on certain CDOs held by about 300 firms. The Federal Reserve, Federal Deposit Insurance Corp., Securities and Exchange Commission and Office of the Comptroller of the Currency said that they would consider exempting the securities and would deliver their answer by tomorrow. The exemption would grant grandfathering protection to CDOs held before last month, as long as they meet thresholds ensuring they are largely tied to securities issued by banks with less than $15 billion in assets, the people said. As an interim final rule, it can be implemented while still allowing the agencies to collect comments.
