10/14/2011

ASF to Challenge Volcker Rule’s Impact

The American Securitization Forum is compiling a list of changes it wants to see in the newly drafted Volcker Rule.

But spelling out those revisions promises to be no easy task, as the trade group still hasn’t figured out precisely how the proposed regulation would affect the structured-finance industry. This much is certain: As written, the directive would make it harder for banks to operate commercial-paper conduits and would conflict with other regulations for term deals.

The FDIC, Federal Reserve and SEC released an initial version of the Volcker Rule on Oct. 11. The ASF has already completed an initial review of the 298-page document, and has assigned staffers to begin drafting a response.

Those individuals also are approaching ASF members for feedback, in a departure from the trade group’s usual practice of waiting for their comments to arrive. Likewise, the group has scheduled a seminar for Nov. 16 in New York to discuss the rule and collect opinions from its constituents.

Why the urgency? “From what we understand thus far, the effect on securitization is significant. But it’s the most complicated banking regulation ever contemplated and the securitization implications are laced throughout the entire document,” ASF executive director Tom Deutsch said.

The SEC has set a Jan. 13 deadline for comments. “We need every one of those 90 days to understand the potential implications and try to address them,” Deutsch said.

The Volcker Rule, so named because it was conceived by former Fed chairman Paul Volcker, is aimed mainly at preventing another financial-market meltdown by placing strict limits on the proprietary trading activities of banks. Securitization specialists view its potential impact on securitization as unintended — and they plan to drive home that point.

Conduits could take the biggest hits. That’s because the proposal could be interpreted to treat them in the same way as bank-sponsored hedge funds and private equity vehicles, which would largely be prohibited. At issue in that case is the murky matter of how the Volcker Rule defines holdings of loans that are permitted as opposed to securities that aren’t. “ABCP vehicles could have certain securities which they could not hold under [the Volcker Rule],” Deutsch said. “Our key comments will be to significantly strengthen and articulate the definition of a loan for a securitization.”

For term deals, the ASF is focusing some of its attention on persuading regulators to ensure consistency between the Volcker Rule and the SEC’s proposed Section 621, a Dodd-Frank Act provision prohibiting parties in a securitization from taking positions that conflict with investor interests within one year of issuance. The trade group is worried that when read together, separate language in the two rules could combine to prohibit certain types of securitizations.

The Volcker Rule, also a product of the Dodd-Frank Act, is set for a final vote by July 21, 2012.

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