The Financial Stability Oversight Council announced that it would hold an executive session next week to consider a “potential application” for dedesignation of a bank holding company or its successor as a systemically important financial institution.

That potential application presumably refers to Zions Bancorp., which said last year that it would shed its bank holding company structure and recast itself as a national bank in order to shed its SIFI designation. No other SIFI banks have undergone such a restructuring.

Treasury Secretary Steven Mnuchin
The Financial Stability Oversight Council, chaired by Treasury Secretary Steven Mnuchin, will consider a "potential application" of a bank holding company seeking dedesignation as a systemic risk. Zions Bancorp. is the only bank currently pursuing such a dedesignation. Bloomberg News

The FSOC notice says that the council will discuss “a potential application to the Council from a bank holding company or its successor under section 117 of the Dodd-Frank Act.” Dodd-Frank requires that all bank holding companies with more than $50 billion in assets are automatically regulated as SIFIs, subjecting them to enhanced prudential requirements such as stress testing, capital and liquidity requirements.

Section 117 of Dodd-Frank — commonly referred to as the “Hotel California” provision — holds that the successor institution of any bank holding company that restructures itself would also be automatically designated as a SIFI.

A successor institution may request a hearing for dedesignation, however, and the FSOC may grant such a hearing if more than two-thirds of the voting members and the chair agree to one. The FSOC must then issue a final decision within 60 days of the hearing and submit a report to the Senate Banking Committee detailing its final decision and the rationale upon which it is based.

The FSOC recently issued a series of regulations for bank holding companies and their successor institutions regarding requesting dedesignation hearings under Section 117, presumably in anticipation of Zions’ pending application.

The FSOC’s notice also said that the committee would receive an “update on the annual re-evaluation of the designation of a nonbank financial company” as a SIFI. This re-evaluation can also be presumed to apply to insurance giant Prudential, which is the only remaining nonbank designated as a SIFI.

The council voted last September to dedesignate American International Group as a SIFI and voted to dedesignate GE Capital in 2016. The council also dropped its appeal of a suit brought by MetLife over its designation, effectively dedesignating the insurer.

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