Banking Law Bulletin
Regulators approval on December 10, 2013 of the final version of the Volcker Rule (the “Final Rule”) was widely reported by the media last week with the possible effects and impact thereof continuing to be widely discussed this week. Why would a seemingly obscure rule, over 900 pages in length, dealing with banks’ trading practices garner so much publicity and attention?
The answer undoubtedly lies in the reason for the rule and the perceived “evil” it is designed to remedy.
At its core, the Final Rule is aimed at preventing banks from using customers’ money to make profit for themselves. The perception (primarily of politicians and the mainstream media) is that banks took too much and too many trading risks which resulted in losses that were as a major cause of the financial crisis in 2007-2008. So, the Final Rule is designed to reduce risk taking by banks and the resultant financial losses caused thereby (or at least it’s so believed). Presto! “Greedy” banks practice of taking trading risks will be hemmed in and the world will be better and safer.
But what impact does the Final Rule have on community banks? Here are some important takeaways:
The American Bankers Association (ABA) in a letter to regulators this week addressed this last point by stating that the Final Rule could have “unintended negative consequences” for banks with investments in trust preferred securities. The ABA letter noted that divesting these obligations in accordance with the Final Rule could cause banks to suffer “unexpected hits to earnings and even to capital”. The ABA urged regulators to take action on this ASAP. So, how “final” the Final Rule is remains to be seen.
On a lighter note, some facts about the Final Rule:
The foregoing is not intended to be legal advice, but rather, to provide accurate information regarding banking law and regulatory matters. For more information regarding any of the foregoing items, please contact any member of our banking practice group: Dennis W. Gorman (firstname.lastname@example.org), William G. Keller, Jr. (email@example.com), James A. Rapp (firstname.lastname@example.org), William M. McCleery, Jr. (email@example.com), Ted M. Niemann (firstname.lastname@example.org), Michael A. Bickhaus (email@example.com) or Andrew K. Cashman (firstname.lastname@example.org), at (217) 223-3030 or visit us on the web at www.srnm.com. We invite and welcome all questions and comments.
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