Fish always rots from the head…

Bloomberg-

U.S. regulators are set to give banks an exemption from Volcker Rule limits for collateralized debt obligations composed mostly of small-bank securities, according to two people briefed on the agencies’ plans.

The adjustment to the rule, which could come as soon as today, would allow banks to keep CDOs backed by trust-preferred securities while limiting the level of insurance and big-bank content, said the people, who requested anonymity because the regulators haven’t acted.

After regulators approved the Volcker Rule on Dec. 10, smaller U.S. banks said it could force them to take as much as $600 million in losses on certain CDOs held by about 300 firms. The Federal Reserve, Federal Deposit Insurance Corp., Securities and Exchange Commission and Office of the Comptroller of the Currency said they would consider exempting the securities and would deliver their answer by tomorrow.

[BLOOMBERG]

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