Volcker Rule And Covered Bonds

The subtler aspects of the Volcker Rule¹ continue to emerge. One of the subtleties is the extraterritorial reach of the Rule in connection with underwriting, investments in, and market making for covered bonds by foreign banks.

Foreign banks that underwrite, invest in, or conduct market making for covered bonds need to review their activity under the Volcker Rule.

Section __.10(a) of the Volcker Rule prohibits the acquiring of ownership interests in covered funds by any banking entity or sponsoring a covered fund.² Foreign banks that are "bank holding companies" under the International Banking Act are included as banking entities under the Volcker Rule definition. The International Banking Act provides that a foreign bank that has a branch or agency in any State or controls a commercial lending company organized under State law is a bank holding company under the International Banking Act and subject to the provisions of the Bank Holding Company Act.