Volcker rule changes bring relief to banks

Small banks & the Volcker Rule

Regulatory agencies have agreed to change a key provision in the Volcker Rule that smaller banks had argued would cause a major hit to their bottom line.

The rule's central goal was to keep banks from boosting their bottom line with proprietary trades—done for the banks' own profit—but the American Bankers Association argued smaller banks had already been given a pass by regulators on this issue in other capital constraints. The rule was part of the larger Dodd-Frank provisions that came into being as regulators wrestled with how to prevent another financial crisis with banks that were too big to fail.

Much of the 880 pages of the highly anticipated Volcker Rule had been thoroughly debated, commented on, and edited before the publication of the suggested final edition on Dec. 10. But a brand-new provision prohibiting banks from keeping investments in collateralized debt obligations backed by hybrid securities called trust preferreds, or TRuPs, immediately ignited a controversy.

Within a week, Salt Lake City-based Zions Bank said it would take a $387 million after-tax charge as it unloaded relevant assets to comply with the rule.