The U.S. Federal Reserve Board is giving firms a bit longer to comply with the so-called Volcker Rule where collateralized loan obligations (CLOs) are concerned.
The Fed announced Monday that it intends to give banks two additional one-year extensions to comply with the Volcker Rule’s provisions regarding CLOs.
The Volcker Rule, which generally prohibits banks from engaging in proprietary trading and from owning or sponsoring hedge funds or private equity funds, takes effect July 21, 2015. On Monday, the Fed announced that it will be granting an extension for CLOs to “ensure effective compliance”.
Only CLOs that were in place as of December 31, 2013, that do not qualify for the exclusion in the final rule for loan securitizations would be eligible for the extension.
As a result, banks would not have to include ownership interests in CLOs to determine its investment limits under the final rule; and, they would not be required to deduct CLO investments from tier 1 capital under the final rule until the new deadline.