The move follows an April statement from the Fed, indicating that it intended to grant two additional one-year extensions for banking entities to conform ownership interests in CLOs backed by non-loan assets and that were in place as of December 31, 2013.
The Federal Reserve Board is granting an extension to the “covered funds” provision of the Volcker Rule, giving all banking entities until July 21, 2017 to exit any investments in hedge funds and private equity funds.
The Volcker rule is a major piece of the Dodd-Frank Act that prohibits banks from proprietary trading, including acquiring ownership interests or sponsoring private equity and hedge funds. The extension is a win for banks, which would have had to divest all private equity and hedge fund stakes by July 2015 under the old deadline.
Providing banks with additional time will allow them to divest investments in “an orderly manner consistent with protecting the safety and soundness of those banking entities” and will “reduce the potential disruptive effects that significant divestitures of covered funds could have on markets and on the investments of others,” said the Fed order.
The extended deadline applies only if the investment was in place as of December 31, 2013 and does not affect the deadline for any investments made, or relationships entered into, during 2014 or later. Such activities and investments still need to conform to the Volcker rule or be divested by July 21, 2015.