Volcker Is LOLkered As TruPS CDO Provision Eliminated From Rule To Avoid "Unnecessary Losses"

Tyler Durden's picture

So much for the strict, evil Volcker Rule which was a "victory for regulators" and its requirement that banks dispose of TruPS CDOs. Recall a month, when it was revealed that various regional banks would need to dispose of their TruPS CDO portfolios, we posted "As First Volcker Rule Victim Emerges, Implications Could "Roil The Market"." Well, the market shall remain unroiled because last night by FDIC decree, the TruPS CDO provision was effectively stripped from the rule.

This is what came out of the FDIC last night: "Five federal agencies on Tuesday approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) from the investment prohibitions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker rule."

In other words, the first unintended consequences of the Volcker Rule was just neutralized after the ABA and assorted banks screamed against it.

But that's not all.

As SIFMA announced today, the banks have more demands. To wit from Bloomberg:

“While we welcome the relief provided to certain holders of TruPS CDOs, we believe that regulators must address the larger problem of the inclusion of senior debt securities issued by collateralized loan obligations in the Volcker Rule’s prohibitions,” Securities Industry and Financial Markets Assoc. CEO Kenneth Bentsen says in statement. If not addressed, corporate borrowers may face higher credit costs, banks may endure “unnecessary losses wholly unrelated to the risk of the CLOs themselves, but rather due to the technical language of the final Volcker Rule." Sifma encourages regulators to issue guidance clarifying that banks may hold CLO debt securities.

So TruPS "fixed", and now comes the turn of the CLO exclusion. We give "regulators" 2-4 weeks before they fold on this demand as well, and soon on all other unintended Volcker consequences that the banks find cause "unnecessary losses."

One wonders: just what in the view of ABA or SIFMA are necessary losses?

From the FDIC press release

Agencies Approve Interim Final Rule Authorizing Retention of Interests in and Sponsorship of Collateralized Debt Obligations Backed Primarily by Bank-Issued Trust Preferred Securities

Five federal agencies on Tuesday approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) from the investment prohibitions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker rule.

Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by banking entities if the following qualifications are met:

  • the TruPS CDO was established, and the interest was issued, before May 19, 2010;
  • the banking entity reasonably believes that the offering proceeds received by the TruPS CDO were invested primarily in Qualifying TruPS Collateral; and
  • the banking entity’s interest in the TruPS CDO was acquired on or before December 10, 2013, the date the agencies issued final rules implementing section 619 of the Dodd-Frank Act.

The federal banking agencies on Tuesday also released a non-exclusive list of issuers that meet the requirements of the interim final rule.

The interim final rule defines Qualifying TruPS Collateral as any trust preferred security or subordinated debt instrument that was:

  • issued prior to May 19, 2010, by a depository institution holding company that as of the end of any reporting period within 12 months immediately preceding the issuance of such trust preferred security or subordinated debt instrument had total consolidated assets of less than $15 billion; or
  • issued prior to May 19, 2010, by a mutual holding company.

Section 171 of the Dodd-Frank Act provides for the grandfathering of trust preferred securities issued before May 19, 2010, by certain depository institution holding companies with total assets of less than $15 billion as of December 31, 2009, and by mutual holding companies established as of May 19, 2010. The TruPS CDO structure was the vehicle that gave effect to the use of trust preferred securities as a regulatory capital instrument prior to May 19, 2010, and was part of the status quo that Congress preserved with the grandfathering provision of section 171.

The interim final rule also provides clarification that the relief relating to these TruPS CDOs extends to activities of the banking entity as a sponsor or trustee for these securitizations and that banking entities may continue to act as market makers in TruPS CDOs.

The interim final rule was approved by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission, and the Securities and Exchange Commission, the same agencies that issued final rules to implement section 619. The agencies will accept comment on the interim final rule for 30 days following publication of the interim final rule in the Federal Register.


Interim Final Rule - PDF

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LawsofPhysics's picture

Once again, the bankers and financial criminals are changing the rules, keeping profits for themselves and socializing any losses onto the backs of what is left of the middle class...

< shocker >

Hedge accordingly...

Croesus's picture

"TruPS" = TRUE PoS 

Not only does it describe the financial instrument, it also describes the regulators, politicians, bankers, and unwitting lackeys who are all 'in on it'. 


hedgeless_horseman's picture



...last night by FDIC decree, the TruPS CDO provision was effectively stripped from the rule.

Chairman, Martin J. Gruenberg

The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; by limiting the effect on the economy and the financial system when a bank or thrift institution fails; [and by decreeing that laws intended to reduce risk in the banking system, but may also reduce profit for FDIC member banks, are null and void].




The banks learned back in April of 2009 that nothing, ABSOLUTELY NOTHING, promotes public confidence like a fascist decree.  Expect MOAR of the same from here on out.

Muddy1's picture


"last night by decree"

"[and by decreeing that laws intended to reduce risk in the banking system, but may also reduce profit for FDIC member banks, are null and void]."

So, how is this different from Obama just deciding that he can ignore his signature piece of (S***) legislation 14 times and make changes or not implement portions of his Obamacare?  Did he learn his trick from FDIC?  Did the FDIC learn from Obama?

"I've got a pen, and I've got a phone."  Barack Obama

tarsubil's picture

Was the rule from legislation? Did the legislation say TruPS had to go? Rhetorical questions.

Fed rules seem to come out of a sausage factory and where they emerge looks a lot like an horse's ass.

tradewithdave's picture

Chiltonianism is not dead.

dick cheneys ghost's picture

The United States of 'We're the fucking banks motherfucker and we will do what the fuck we want'

tradebot's picture

well...after all, you are the sheeple...

yogibear's picture

Eric Holder of the Just-Us department will protect us banksters although he may charge a fee occasionally called a fine. It's part of the bussiness costs for investment banksters.

orangedrinkandchips's picture

It is like Catholicism....pick what parts you want to believe in.....it;s all made up anyway!

hedgeless_horseman's picture




The Decree of Darius

..."Leave this work on the house of God alone; let the governor of the Jews and the elders of the Jews rebuild this house of God on its site. "Moreover, I issue a decree concerning what you are to do for these elders of Judah in the rebuilding of this house of God: the full cost is to be paid to these people from the royal treasury out of the taxes of the provinces beyond the River, and that without delay. "Whatever is needed, both young bulls, rams, and lambs for a burnt offering to the God of heaven, and wheat, salt, wine and anointing oil, as the priests in Jerusalem request, it is to be given to them daily without fail,…



Boxed Merlot's picture

Darius' decree was based on several mitigating factors.  He wanted the God of Abraham, Isaac and Jacob to be on his side and to bless his kids, he found the original paperwork to authorize the task in the writings of the Medes and Persians which were considered even more sacrosanct than the US Constitution, he recognized the duplicity of the kings that opposed the returning exiles, and frankly, I think he was just glad to have these guys out of his own country.


It didn't matter though, the holocost in 70ad due to the jews continued syncretism put a fork in it and with that destruction of the temple, all records proving direct lineage to any of Abraham's offspring were forever obliterated.  Anyone wishing to be on either /any side of Abrahams bloodline is equally justified in doing so, as it's all been a factual matter of faith ever since.




stinkhammer's picture

This is not Nam Smokey there are rules. Doesn't anyone give a shit about the rules?

semperfi's picture

drug cartels own/run the banks

banks own/run the govt

why am I not surprised ?

AccreditedEYE's picture

If Warren/McCain are to be taken at their word, this should galvanize them to push forward with 21st Century Glass-Steagall. (I'm not holding my breath tho)

LawsofPhysics's picture

Well, one should be optimistic...

kenezen's picture

I'm in complete agreement with your intelligent query. Except for thinking McCain can really perform at anything. He' getting too spread and old. I do hope he comes through. 

Real Estate Geek's picture

Bah! The only thing I hope he comes through is the thin crust of ice on the tidal basin.

paint it red call it hell's picture

Any bill mccain becomes involved in will be convoluted from positive intent to destructive reality, be water down to ineffective tripe or be doomed to the senate circular file outright.

alien-IQ's picture

The endless farce.

markelshark's picture

Anyone want to take a crack at what TruPS CDOs are in layman's terms? 

kenezen's picture

How do these match up with Synthetic CDO perfomance with both in-house and remote assets? In yield and default or Slow pay risk? Are they allowed to reside in FDIC accounts for best treatment? What's the hedging format used?

CheapBastard's picture

pay no attention to the man behind the curtain...keep the masses movingh....along with the cattle and sheep....

youngman's picture

They pass these laws to get more money for their re election campaigns.....donations go up when a business needs a rule change...

kwatinhu's picture

I don't begrudge anyone making money, but these guys are playing both ends of the fence and screwing any and everybody in between. This can't go on, sooner or later it's got to come crumbling down and they need to be made an example of.


akarc's picture

"This can't go on, sooner or later it's got to come crumbling down and they need to be made an example of."

Sarcasm right?

kwatinhu's picture

Somebody call BathHouse Barry, he'll put an end to it!

pods's picture

So without any knowledge of these products or these rules can I take a stab that this will benefit the banks at our expense?


Winston Churchill's picture

That is the ONLY rule that matters.

alangreedspank's picture

The only thing that could clean this mess that's being overlooked about the Volcker legacy: 20% overnight rates.

thefirstabomb's picture

The volker rule is a joke.  The one (and only) regulation banking needs is: no publicly traded banks.  Make them have to  be privately held partnerships.  This makes them smaller (not too big to fail) and the senior management won't stand for crazy risky bets because it is their money that will go down the drain if it doesn't pan out. 

Imagery's picture

The tyrannical and treasonous narcissists have completely taken over our governments and courts – including the US Supreme Court.   Just recall what has transpired since this latest crash that began in 2007, ObamaCare “argued” by the SC as a tax when even the idiots in DC knew it was a loser due to apportionment issues in the law, Holder’s criminal engagement in Fast and Furious and his refusals to prosecute TBTF Banks because, in his own words, it might crash the economy, the US Govt’s furious pursuits of Snowden for exposing clear violations of Constitution / Bill of Rights yet refusing to prosecute Clapper at NSA Head for not only engaging in these tactics but then clearly lying to Congress under oath and getting caught, etc, etc.  I could go on and on and on but what’ the point?  It’s all been confirmed by now as an Empire in Decline resorting to Banana Republic tactics the likes of which the world has never  before seen!

The only peaceful hope I see is one in which I have vowed to continue, unless and until, the lawlessness, theft,  and outright usurpations of the Constitution and Bill of Rights by our supposed representatives and highest prosecutor in the land ceases.  It involves a simple statement that everyone capable of an ounce of critical thinking should / could imploy; to wit:

Next time you are called to criminal jury duty simply state, during voire dire, that you refuse to convict irrespective of any and all evidence put forth by the state unless and until those TBTF Bank Executives, John Corzine, Eric Clapper, Holder, etal, are subjected to their duly earned day in court.  When one thinks of the relative magnitude of the damage to society by the parties, Corzine/Clapper/Diamond/Holder/etal versus the poor man robbing the 7-11 for $50 it is a rather academic exercise – though I expect most academians today would choose to argue for the state – to continue to receive their state funding of course since they clearly have no conscience.

Good Luck……..

MeelionDollerBogus's picture

Under the new Unconstitution of the United States of Corpmerica that's ter'ist talk & you have been summarily found guilty of being a commie muslim and will be sent immediately to GITMO.

Gromit's picture

The facilitators (regulators) know they are wrong, it's just that, like Weimar 1921/2, they are unable to face the consequences of correct actions.

MeelionDollerBogus's picture

And in unrelated news, heroin cut with babyformula will now be cut with more heroin instead.
Keep BTFATH & Carry on