ABA’s Carney: TruPS Issue Comes Back to Haunt Community Banks

Despite regulators’ action — and ABA’s lawsuit — after the Volcker Rule to protect existing bank investments in trust preferred securities, community bankers are facing the same issue as the Basel III capital standards come into effect, ABA VP Hugh Carney wrote in an American Banker op-ed today.

Carney noted that the Basel III capital deduction “strongly encourages the very divestiture of TruPS collateralized debt obligations that was overturned in the 2014 interim final Volcker rule.” This harsh treatment doesn’t make sense, he added. “While some issues in the TruPS market warrant higher capital requirements, treating a bank’s entire exposure as a loss is beyond the pale.”

“Similarities between Volcker and Basel are striking: Both rules weren’t intended for community banks, but have had a disproportionate impact on hometown institutions,” Carney concluded. “The difference is that with Volcker, regulators recognized congressional intent and provided relief. They have yet to do so with Basel III.”