FSOC removes Zions' systemic risk label

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WASHINGTON — The Financial Stability Oversight Council voted Wednesday to remove its designation of Zions Bank as a systemically important financial institution, or SIFI, making it the first bank to formally shed the designation at the council's discretion.

The council voted to grant an application by Zions Bank N.A. to no longer be considered a SIFI under section 117 of Dodd-Frank. When it was passed, the law mandated that any bank with more than $50 billion in assets is considered a SIFI and subject to enhanced prudential standards, including annual stress testing, the maintenance of living wills and additional capital and liquidity requirements.

“Zions engages in limited capital markets activities, presents minimal fire sale risks, uses a simple operational structure, and is subject to extensive regulation and supervision,” Treasury Secretary Steven Mnuchin, who also chairs the FSOC, said in a press release. “The Council determined that there is not a significant risk that Zions could pose a threat to U.S. financial stability, and I am pleased that the Council used its authority to promote regulatory efficiency.”

Andrew Harrer/Bloomberg

The $66 billion-asset Zions restructured itself last fall to shed its bank holding company structure, primarily in order to lose its SIFI status. Dodd-Frank includes a provision that requires any institution that removes its holding company to be automatically considered a SIFI — a so-called Hotel California provision mean to keep large investment banks that became bank holding companies in order to receive taxpayer bailouts during the financial crisis from reverting back to investment banks later.

A restructured institution can apply to drop the designation under section 117 of the law, however, and in that circumstance the FSOC can vote to approve or deny the application. Zions, of Salt Lake City, is the first bank to apply under section 117 — and the first to be granted relief.

The victory is somewhat moot, however. President Trump signed a bill in May that raised the minimum asset threshold for SIFIs from $50 billion to $250 billion, and allowed the Federal Reserve to apply whatever enhanced prudential standards to banks between $100 billion and $250 billion that it thought appropriate.

Earlier this year, the Fed opted not to release the results of its annual stress tests for Zions, Comerica, BBVA and Discover Bank because they fell below the $100 billion asset threshold, and the Fed said after the bill’s passage that it would “not take action to enforce certain regulations and reporting requirements for firms with less than $100 billion in total consolidated assets, such as rules implementing enhanced prudential standards and the liquidity coverage ratio requirements.”

The council did not reach a decision on whether to de-designate insurance giant Prudential as the lone nonbank SIFI at its closed door meeting Wednesday. After the successful de-designations of GE Capital and American International Group — and a successful lawsuit by MetLife to have its SIFI designation overturned — Prudential remains the only nonbank subject to enhanced prudential standards.