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ICBA Push in Washington to Correct Volcker Rule Making Important Progress

To the nation’s community bankers,

As you know, ICBA has taken the lead in working to overturn language in the Volcker Rule that could have dramatic unintended consequences for hundreds of community banks. We understand the impact this rule could have on community banks across the nation, and fortunately our efforts are making important headway in Washington. It has been less than a month since the federal banking agencies issued their final Volcker Rule, and ICBA has been engaged with policymakers on a day-to-day and minute-to-minute basis ever since.

As I wrote in an American Banker op-ed that went live yesterday, while many Americans spent the holidays unwrapping presents with loved ones, their local economies were jeopardized by a section of the Volcker Rule that poses a threat to banks large and small. ICBA has met face-to-face with regulators and members of Congress to overturn a provision of the rule that could force hundreds of community banks to write down their holdings of collateralized debt obligations backed by trust-preferred securities. We have called for regulators to fix this troubling provision and for Congress to enact legislation to exempt these instruments from the Volcker Rule.

And thanks to ICBA’s steadfast advocacy, Congress and the regulators are already moving to change the rule and limit the impact on community banks. In the first week of the 2014 congressional session, members of both chambers of Congress have introduced legislation to enact ICBA-advocated changes to the Volcker Rule, which in certain circumstances would require banks to divest their holdings of CDO TruPS and write down the investments.

In the House, Subcommittee on Financial Institutions and Consumer Credit Chairman Shelley Moore Capito (R-W.Va.) and Financial Services Committee Chairman Jeb Hensarling (R-Texas) have introduced legislation to prohibit the Volcker Rule from requiring banks to divest CDO TruPS holdings issued before Dec. 10, 2013. Similar legislation was introduced in the Senate by Banking Committee member Mark Kirk (R-Ill.), Ranking Member Mike Crapo (R-Idaho) and others. ICBA has worked closely with the members of Congress on this legislation and has expressed its strong support for these measures and for prompt, bipartisan passage in Congress.

Meanwhile, the federal banking regulators are expected to release an interim final rule early next week to make changes to the Volcker Rule provisions affecting CDO TruPS, as urged by ICBA. The regulators are reconsidering whether existing CDO TruPS should be covered by the Volcker Rule. This would be an important response to ICBA’s repeated calls for regulators to completely exempt community bank CDO TruPS.

Let’s remember, the Volcker Rule was designed to bar high-risk proprietary trading at the nation’s largest banks. In releasing their rule, the regulators have threatened the capital position of many community banks by requiring all banks to divest their holdings of CDO TruPS by July 2015 and to recognize any impairments before year-end 2013. If community banks were forced to write these investments down instead of holding them to maturity, they might have to do so at “fire sale” prices that would result in a permanent loss of capital.

Once again, efforts to rein in abuses on Wall Street have put common-sense community banks at risk. That is why ICBA has been working in Washington day in and day out to hold policymakers’ feet to the fire and to prevent regulatory overreach from threatening community banks and local communities across the nation.

ICBA will continue working with regulators and Congress on behalf of a permanent solution. And we will continue providing regular updates to community bankers nationwide to ensure you have the very latest on this important and fast-moving issue.


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