Volcker Lawsuit on TruPS-backed CDO

The American Bankers Association and four individual banks brought a lawsuit seeking injunctive relief against the banking regulators, and asserting that the provision of the Volcker Rule’s final regulations that requires banking entities to divest themselves of a “commonly held debt instrument known as a ‘TruPS-backed CDO'” was in violation of the law in that the instruments constitute debt, rather than equity interests, and are therefore outside the scope of the Volcker Rule. Beyond the substantive legal question, the lawsuit also challenges the procedure by which this particular provision of the regulations implementing the Volcker Rule was adopted.

Newspapers have reported that proceedings on the lawsuit are delayed while the banking regulators reconsider their position.

See: American Bankers Association v FDIC Complaint; Banking Agencies Press Release; Bloomberg News Article.

 

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