Once again, the Federal Reserve is giving banks a reprieve from the Volcker rule. Its Board of Governors has agreed to offer them an additional two years to unwind their ownership and sponsorship interests in collateralized loan obligations.
CLOs, securitization vehicles backed by commercial loans, are among the financial instruments prohibited by the Volcker rule, a ban on proprietary trading by federally insured banks and a prohibition on relationships with hedge funds and private equity funds. The rule, included in the Dodd-Frank Act, directed the Federal Reserve to establish a conformance period for banks to unwind those assets. It has already issued one extension, until July 21, 2015. In order to “ensure effective compliance,” the Fed now says banks will be allowed two additional one-year extensions, which together would extend until July 21, 2017.
