The American Bankers Association announced Wednesday that it will drop its request for emergency relief in pending litigation over the Volcker Rule, but declined to stop the suit entirely.

The trade group sued the banking agencies late last year, arguing the rule would cause "immediate and irreparable" damage to community banks because it unexpectedly covered certain collateralized debt obligations backed by trust preferred securities. The trade group sought an emergency court action, warning that banks would have to take massive write-downs if the provision of the rule were allowed to stand.

Regulators signaled Dec. 27 that they planned to address the issue, finally doing so late Tuesday. They issued an interim final rule that would exempt all CDOs that were backed with Trups issued by banks with less than $15 billion of assets. In practical terms, that exemption would help more than 90% of potentially affected CDO Trups, according to ABA's analysis.

As a result, the trade group said Wednesday it was no longer seeking emergency action. However, it reserved the right to keep the litigation going until the group better understands how many institutions may still be affected by the issue.

"After reviewing the regulators' interim final rule and assessing the relief it provides affected banks, we have decided to withdraw our request for emergency relief in the pending litigation," said Frank Keating, president of the ABA in a press release. "We are, however, deferring a decision on dismissal of the litigation to allow time to consult with our membership and finalize our analysis of the impact and implications of the interim final rule."

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