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Fed gives banks more time on Volcker rule detail 

April 8, 2014
Douwe Miedema, Reuters

The U.S. Federal Reserve will give banks two more years to divest collateralized loan obligations (CLOs) that fall under the Volcker rule, a part of the Dodd-Frank financial law that bans banks from making a range of risky investments.

The Fed said banks will now have until July 21, 2017 to shed these funds, which pool together risky loans.

CLOs are a way for banks to remove loans from their balance sheets by selling the exposure to other investors, a form of securitization. Those investors can be other banks.

But the Volcker rule, part of the 2010 Dodd-Frank financial reform law, caps banks' ability to invest in risky funds such as hedge funds and private equity funds to 3 percent, and some CLOs fall under this rule.

The loans held in CLOs are high-yielding, and are generally used in leveraged buy-outs, to finance the acquisition of a company by a private equity firm. 

Read more: Reuters

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