While the market is digesting the new ABS proposals from the Securities and Exchange Commission, a separate batch of proposals from the Federal Reserve Board were being doled out to bank holding companies. One proposal would allow just 25% of Tier 1 capital to be comprised of trust preferred securities, for regulatory capital purposes. Last year the regulators granted temporary relief to banks that were made to deconsolidate their trust preferred securities as a result of Financial Interpretation No. 46-R.

Over the last few years, TruPS have increasingly become an attractive source of collateral for CDOs. Issuers and dealers of CDOs have been grappling with the potential changes - if there are any - which the regulation could have upon securitizations backed by TruPS.

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