Fed Proposal May Lift Volcker Ban on CLO Investments in Bonds

The Federal Reserve approved a proposal that would roll back a Volcker Rule ban on a CLO’s ability to invest in bonds, a win for the industry.

• The change would allow CLOs to once again invest as much as 5% of each deal in corporate bonds. Allowing an issuer to hold a small amount of these assets may provide banks with more flexibility to sell and securitize loans, the Fed said in its proposal
• Under the original Volcker Rule regulations, banks became limited in how much they can invest in “covered funds,” which included debt securities of CLOs, except for ...