Regulators consider Volcker rule change

U.S. bank regulators said Friday that they would consider allowing banks to hold on to certain complex securities despite a new rule limiting risky investments. The announcement came after the American Bankers Association filed a lawsuit warning of hefty losses.

TheVolcker rule prohibits banks from owning hedge funds or private equity funds to reduce risk, but the ban included a type of security that community banks regard as harmless.

The regulators said they would now reconsider whether these instruments could be made exempt and would make a decision no later than Jan. 15.

A change would mark the first finessing of the Volcker rule, one of the most hotly debated provisions of the Dodd-Frank law, which was designed to overhaul Wall Street after the devastating financial crisis of 2007-09.

At stake are collateralized debt obligations backed by trust preferred securities — or TruPS CDOs — which have hybrid characteristics of both debt and equity and can get a favorable tax treatment.

The Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. had earlier told banks that they did not immediately need to sell the assets in question.

— Reuters

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