Regulators eye exemption to part of Volcker US regulators are considering an exemption to part of the Volcker rule which has triggered a legal challenge from smaller banks worried that it will hurt their profits. The Federal Reserve, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Office of the Comptroller of the Currency said they were "reviewing whether [such a move] would be appropriate and consistent" with broader regulatory reforms. The Volcker rule - named after the former Federal Reserve chairman Paul Volcker - is aimed mainly at shutting down the proprietary trading desks that the largest Wall Street banks use to take positions with their own funds. However, it became clear this month that smaller banks were also being affected by the new rule that was recently ratified by regulators. Zions Bancorp, a Utah-based bank, announced it would have to take a $387m charge to write down the value of trust preferred securities. Smaller banks are some of the biggest owners of these securities, which fall under the definition of a prohibited "covered fund" as part of the Volcker rule. Zions said it would have to sell its portfolio of collateralised debt obligations backed by trust preferrers. Making them available for sale means the bank has to value them at their latest market level, triggering the charge. The American Bankers Association filed a legal challenge on Christmas Eve, requesting that the provision was blocked on the grounds that it was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Regulators had already released guidance to banks, explaining they might be able to restructure the securities rather than engage in a costly sale. On Friday they went further in new guidance, released in advance of a Monday deadline for them to respond to the legal complaint filed in the District of Columbia Court of Appeals. The four agencies said they would address the matter no later than January 15. Their accountants said this would still allow banks to adjust their final 2013 accounts. Smaller banks have a lot of local political power in the US and had already persuaded members of Congress to give them a raft of exemptions from the 2010 Dodd-Frank financial reforms.