The American Bankers Association last week said it could bring legal action against banking regulators, including the Federal Reserve, the Office of the Comptroller of the Currency and the FDIC if they did not change provisions to the Volcker rule. The Volcker rule, which seeks to force banks to divest themselves of hedge funds or private equity funds in order to mitigate risk, contained a provision which would keep community banks from owning collateralized debt obligations backed by trust trust preferred securities, or TruPS CDOs, Reuters has reported.
The ABA argued that the provision deprived community banks of an asset class they see as harmless, Reuters reported. It filed suit against banking regulators, warning that community banks would suffer heavy losses due to the provision.
Regulators have now said they will consider exemptions for TruPS CDOs.
Banking regulators have conceded that they could tweak the Volcker rule of avoid a lawsuit threatened by lenders.