Volcker Court Showdown Delayed Until January


The legal battle over the application of the Volcker Rule is unlikely to be resolved until mid-January.

While the American Bankers Association had filed an emergency appeal for a ruling before Dec. 31, the trade group has backed off that timeline after regulators reassured bank auditors that they would not have to immediately decide on an account treatment for trust-preferred securities.

At issue are whether and when banks should recognize fourth-quarter losses on certain collateralized debt obligations backed by the securities. Regulators revealed last week that they are considering exempting such CDOs from the Volcker Rule, with a final decision expected by Jan. 15. The regulators added that banks should not decide on an accounting treatment before the issue is resolved (banks have until the end of January to file for the end of the fourth quarter).

“The accounting staffs of the agencies believe that, consistent with generally accepted accounting principles, any actions in January 2014 that occur before the issuance of Dec. 31, 2013, financial reports should be considered when preparing those financial reports,” the regulators said.

That has provided banks with some breathing room, according to observers, and gives more time for regulators and the court to act. The ABA filed suit last week in two different courts, arguing that regulators should exempt Trups-backed CDOs from the Volcker Rule. Regulators have acknowledged they are weighing whether to grant such an exemption, which may make the lawsuit unnecessary.

The regulators are now required to file their response to the ABA’s suit by Jan. 17. A separate court proceeding was also scheduled for Dec. 31, but was unlikely to produce a ruling.

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