If Salt Lake City-based Zions Bancorp. persuades regulators to free it from enhanced prudential oversight, several other systemically important financial institutions could be inspired to do the same.
In a Feb. 21 meeting, the Financial Stability Oversight Council discussed a "potential process" to deal with applications from large banks looking to avoid enhanced prudential regulation. Under the Dodd-Frank Act, any bank holding company that accepted Troubled Asset Relief Program funds and had more than $50 billion in total assets as of Jan. 1, 2010, would be regulated by the Federal Reserve as a SIFI even if the firm scrapped its bank holding company.
The original provision was designed to keep two large investment banks, Goldman Sachs Group Inc. and Morgan Stanley, from removing their bank holding companies to avoid compliance with postcrisis regulations. Those in the industry labeled the rule the "Hotel California" clause, referring to the Eagles song about a traveler trapped in a highway-side hotel.
Companies, however, can appeal their SIFI status to FSOC.
FSOC did not reference Zions in its meeting notes, but the $66.29 billion-asset firm is the only bank holding company petitioning for the removal of its SIFI status. The regulatory body did not offer a timeline for the appeal process, noting only that it is discussing how to engage with applicants and analyze potential risks.
A bill in the Senate could remedy the issue. It would raise the SIFI asset threshold from $50 billion to $250 billion, effectively pulling most bank holding companies, including Zions, out of systemically important status. The Fed would then have the discretion of applying enhanced prudential standards to firms with between $100 billion and $250 billion as it sees fit. The legislation is scheduled for a full-chamber floor vote in the week of March 5.
![]() |
But Zions does not want to wait for congressional action. At the end of 2017, the company announced it would be consolidating its holding company into its bank-level subsidiary. Although dissolving the bank holding company is not a new strategy to streamline regulatory oversight, Zions is one of 25 U.S. bank holding companies checked into the Hotel California, so it would need FSOC's blessing to get out.
"Zions probably has a good case that they're not [a SIFI]," said Ralph MacDonald III, a partner at Jones Day specializing in issues related to bank holding company structures. New banking regulators appear "sympathetic" to reducing regulatory burden, he added.
Other superregional banks with traditional business models, such as BB&T Corp. and Huntington Bancshares Inc., could follow Zions' lead if it succeeds in shedding the SIFI designation, MacDonald said.
Comerica Inc. Chairman and CEO Ralph Babb Jr. said the company is considering "all alternatives that are out there." M&T Bank Corp. does not currently see the "benefit" of eliminating the bank holding company charter, CFO Darren King said, but it might reassess its options depending on the outcome of Zions' appeal. "Yes, it's possible," King said in a Jan. 18 earnings call. "Anything is possible."
If FSOC lifts the enhanced prudential oversight over Zions and other large banks, the Federal Deposit Insurance Corp. would face more responsibility monitoring financial stability, said Arthur Wilmarth, a law professor at the George Washington University Law School.
A failing bank that is neither a bank holding company nor a nonbank SIFI would not be eligible for resolution under Dodd-Frank's orderly liquidation authority. In the absence of a buyer for most deposits, the FDIC would then need to tap into its $92.7 billion deposit insurance fund. "The FDIC, it seems to me, takes on a lot more risk if this happens," Wilmarth said in an interview.
Did you enjoy this analysis? Click here to set up real-time alerts for data-driven articles on the U.S. financial sector. Click here for a template that presents a list of financial institutions in MI's coverage universe that participated in the Troubled Asset Relief Program (TARP). |


