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Banks back off on Volcker rule lawsuit

Regulators said to work with ABA for changes

By Andrew Zajac, Bloomberg

February 13, 2014 • Reprints

The American Bankers Association is dropping its lawsuit challenging a provision of the Volcker Rule that requires community banks to divest their holdings in some collateralized debt obligations.

The industry group, which previously said banks would suffer losses of $600 million because of the provision, is working with regulators which have already made changes to the rule that “allowed many banks to avoid taking hundreds of millions of dollars in unnecessary writedowns,” Frank Keating, the president of the association, said in a statement.

Additional concerns can best be addressed “without the chilling impediment of pending litigation,” he said.

The rule named for former Fed Chairman Paul Volcker, who championed it as an adviser to President Barack Obama, was included in the 2010 Dodd-Frank Law that overhauled U.S. financial regulation as a way to restrict banks’ proprietary trading and other risky bets after the 2008 credit crisis. The Fed has given banks until July 21, 2015, to comply.

The bankers association, which represents mostly community banks, objected to a portion of the rule that would force lenders to get rid of CDOs backed by trust-preferred securities.

The association sued the Federal Reserve System, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency on Dec. 24 in a bid to block the rule from taking effect before the end of 2013. The association asked a judge Dec. 31 to put the lawsuit on hold after regulators said they were reviewing challenged aspects of the rule.

The group filed a similar complaint in the U.S. Court of Appeals in Washington because that court has jurisdiction over the Fed.

The district court case is American Bankers Association v. Federal Deposit Insurance Corp., 13-cv-02050, U.S. District Court, District of Columbia (Washington). The appeals court case is American Bankers Association v. Federal Reserve System, 13-1310, U.S. Court of Appeals, District of Columbia (Washington).

www.bloomberg.com

About the Author

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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US Federal Reserve 8527Barack Obama 909banks 275Regulations 267Trading 230Washington 224U.S. District Court 202Paul Volcker 114Comptroller of the Currency 105Federal Deposit Insurance Corp. 74Federal Deposit Insurance Corp 67District of Columbia 47Volcker Rule 27American Bankers Association 18U.S. Court of Appeals in Washington 5Frank Keating 5aba 1

Free Newsletter Modern Trader Follow

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