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January 2015
While the change is small by financial regulatory standards, H.R. 37 will help ensure the
Volcker Rule does not force banks of all sizes
into fire sales, potentially leading to billions
of dollar of losses that would threaten credit
access for American businesses. The CLO
market provides financing for thousands
of leading American companies such as
American Airlines, JC Penney, Time Warner,
General Motors, and Rite Aid. CLOs also finance smaller, growing businesses that cant
access the bond market to grow and create
n a column this weekend, Kicking DoddFrank in the Teeth, the NYTs Gretchen
Morgensen
argued that H.R. 37s aim is a
Measures designed to avoid fire sales
caused via phased-in compliance for leg- further rollback of regulations put in place
to keep markets and Main Street safe from
acy CLOs has been supported by Memreckless Wall Street practices. She specifbers of both parties, the broader busiically referenced one provision that would
ness community, and banks of all sizes.
allow institutions holding collateralized loan
In fact, H.R. 4167, which goes beyond
obligations (CLOs) securitized prior to the
H.R. 37 to provide relief for even new
final Volcker Rule to sell them by July 2019
CLO issuances, passed HFSC last year
rather than July 2017. Morgensens argument
by a vote of 53 to 3 and then the full
is part of a larger narrative that any reform
House by unanimous voice vote.
to Dodd-Frank an 848 page bill with thousands of pages of rules represents a win
While some global banks hold CLOs, they for Wall Street and a loss for Main Street.
are not the only ones.
However, the facts suggest otherwise.
Smaller bank holding companies are
While Volcker Rule is a much broader reguladisproportionately impacted relative
tion (well beyond CLOs), the minor provision
to their CLO investments and overall
in H.R. 37 keeps the Volcker Rules ban on
capital base.
proprietary trading and covered funds com CLOs have a cumulative 20-year default pletely intact. It simply affords a phased-in
compliance aimed at existing CLOs created
rate of 0.41 percent.
before the Volcker Rule was finalized. For
According to S&P, no AAA or AA-rated
CLOs issued after Jan. 31, 2014, this provision
CLO tranche has defaulted in the last
changes nothing.
20 years.