WASHINGTON – U.S. Senators Roger Wicker (R-MS) and Joe Manchin (D-W.Va.) today introduced legislation to protect community banks from losing millions of dollars due to an oversight in the Volcker Rule.

The Volcker Rule, which went into effect on December 10, 2013, and was intended to protect the U.S. economy from risky bets by large banks, currently requires community banks to sell at depressed values securities that helped them raise capital; the investments were never intended for trading or speculation. These community banks made safe investments with the assurance they would be exempted from regulation, and that expectation must be protected from bureaucratic oversight. In response, Senators Manchin and Wicker wrote a letter to the regulators on December 19, 2013, demanding the regulators fix their technical glitch.

As of today, they have failed to do so, and could require these community banks, which had nothing to do with the 2008 financial crisis, to abide by burdensome regulations that would put many out of business and undermine the U.S. economic growth. Senators Manchin’s and Wicker’s legislation would provide a grandfather status to any community bank that has invested in collateralized debt obligations backed by trust preferred securities (CDO TruPs). A community bank is defined as a bank with less than $50 billion in assets, and this legislation would cover 99 percent of all banks.

“Unless the Volcker Rule is further clarified, some community banks in Mississippi and across the country will see severe and immediate losses under the requirement regarding investments in CDO-TruPs,” Senator Wicker said. “It could have a negative impact on economic growth and recovery in our nation’s communities. This legislation would protect small banks that had these investments before the rule was finalized.”

“The Volcker Rule was never intended to harm community banks, and without this fix, these small banks could lose millions of dollars. Our legislation tailors the intent of Dodd-Frank and the Volcker Rule to make sure no abuses that could lead to the next financial crisis can occur. When Americans and small businesses deposit their money at community banks, those institutions turn around and invest it in their hometowns. Those investments make for vibrant communities, and I am committed to protecting our community banks to make sure that they will continue to thrive.”

While other legislation has been introduced to fix the Volcker Rule, these other bills would apply to all banks, including Wall Street banks, and would also apply to other types of risky securities owned by the largest Wall Street banks, such as all types of collateralized loan obligations (not just TruPs). These provisions would allow the biggest banks to continue to own billions of dollars in the types of securities that led to the 2008 crisis. Senators Wicker's and Manchin's legislation is currently the only bill tailored to protecting community banks.