By Bora Yagiz, Compliance Complete
NEW YORK, Jan. 24 (Thomson Reuters Accelus) - Banks that have relied over the years on a special type of assets to fulfill their capital requirements may soon have to restructure their investment portfolios to bring it in line with the Volcker rule limiting risky trading by banks. At stake is the treatment of the Trust Preferred Securities (TRuPS), whose inclusion as “investments in entities referred to as covered funds” such as collateralized loan obligations and collateralized debt obligations, would oblige banks to divest them in compliance with the Volcker rule.
The intent behind the complex Volcker rule is clear. It is aimed at limiting the exposure of banks to certain type of “covered funds” such as hedge funds or private equity funds to 3 percent, and to prevent them from engaging in proprietary trading, namely, trading with their customers’ funds for their own short term gains rather than trade on their clients’ behalf. It is, therefore, a rule to make banks’ investments less risky and more transparent. (more…)