Leaving Dodd-Frank’s ‘Hotel California’ not as hard as you think
By John Heltman
The Dodd-Frank Act included a provision to lock some of the biggest firms into the law’s enhanced supervisory regime even if they tried to leave. But that grasp may not be as strong as it used to be. Zions Bancorp.’s recent decision to focus just on its bank subsidiary already cast doubt on the need to own a bank holding company. …Karen Shaw Petrou, managing partner at Federal Financial Analytics, said that if there were no Hotel California provision, it is possible that investment banks would have availed themselves of this option — becoming a bank holding company short-term and then switching back once they no longer needed the benefits — years ago. But nearly 10 years on and after untold millions spent to accommodate the post-crisis regulatory regime, the costs of shedding their bank holding companies is probably more trouble than it is worth, Petrou said. “In 2011, yes, I think we would have seen BHCs … forced into conversions immediately try to check out of Hotel California,” Petrou said. “In 2017, with seven years of significant change to their business model and investment in insured deposit gathering, lending and other more traditional functions that need to be in a bank, the decision is a lot less clear. In Goldman and Morgan Stanley’s case in particular, to debank is a significant structural transformation.”