iThe Financial Stability Oversight Council (“FSOC”) has announced that on Thursday, April 12, 2018, it will consider a “potential application” from a bank holding company or its successor to be de-designated as a systemically important financial institution under section 117 of the Dodd-Frank Act.
Sometimes known as the “Hotel California” provision,[1] section 117 of Dodd-Frank provides that any institution that was a bank holding company with $50 billion or more in total consolidated assets as of January 1, 2010, participated in the Capital Purchase Program of the Troubled Asset Relief Program, and ceases to be a bank holding company, will presumptively be treated as a nonbank systemically important financial institution (“nonbank SIFI”) and continue to be supervised and regulated by the Federal Reserve. Such an institution may appeal its designation as a nonbank SIFI to FSOC, which may grant the appeal by a vote of two-thirds or more of its voting members, including an affirmative vote by the Chairperson (the Secretary of the Treasury).
It is widely assumed that the potential applicant is Zions Bancorporation, which announced in November 2017 that it would eliminate its bank holding company and file an application with FSOC under section 117 to be de-designated as a nonbank SIFI. Other banking organizations will be watching closely to discern FSOC’s approach to evaluating section 117 applications. Institutions with interest in the section 117 process are likely to include any institution that does not rely substantially on the expanded powers granted to bank holding companies, and therefore could operate its businesses exclusively through its bank and bank operating subsidiaries; and any institution that focuses on nonbanking businesses such as securities, and therefore could divest its bank subsidiary or seek to convert it into a type of bank that is exempt from the definition of “bank” under the Bank Holding Company Act, such as an industrial loan company.
[1] “You can check out any time you like, but you can never leave!” Eagles, Hotel California, 1977.
