Zions to Challenge Its 'Big Bank' Label -- 2nd Update
November 20 2017 - 4:09PM
Dow Jones News
By Christina Rexrode
Zions Bancorp has long insisted it isn't the same as bigger
rivals with Wall Street businesses. Now it wants regulators to say
so too.
The Salt Lake City, Utah-based bank confirmed Monday that it
will petition regulators to remove it from the group of big
financial firms that are subject to heightened regulation. The news
had previously been reported by The Wall Street Journal.
Zions' expected request is a sign of a shifting regulatory
landscape in which the Trump administration has adopted a
friendlier tone toward banking and in turn emboldened the banks.
But it also highlights an increasingly popular bipartisan view that
midsize banks don't pose the same threat to the financial system as
banks with global operations.
That represents a rethinking of the Dodd-Frank Act of 2010,
which was intended to prevent another financial crisis but, to
some, unfairly placed regional banks under the same regulatory
umbrella as much larger banks such as J.P. Morgan Chase & Co.
and Bank of America Corp.
Zions would be the first bank to openly petition the Financial
Stability Oversight Council, a committee of senior regulators and
government officials created by Dodd-Frank, to remove it from the
list of institutions commonly known as "systemically
important."
That label applies to bank holding companies with more than $50
billion in assets and some non-banks such as big insurance
companies. Those firms are subject to stricter regulations on
capital, liquidity and other business. Zions has about $65 billion
in assets. The biggest bank in the U.S., J.P. Morgan, has about
$2.56 trillion.
If the changes go through, Zions would likely be able to cut
administrative and accounting costs, an appealing prospect at a
time when tepid economic growth and low interest rates have kept
banks' profitability in check. But Zions has also argued that its
current regulatory arrangement subjects it to duplicative,
overlapping regulatory agencies.
Under its plan, Zions would remove the Federal Reserve as a
regulator and would no longer need to file annual and quarterly
reports with the Securities and Exchange Commission. But it would
still report to the Office of the Comptroller of the Currency, the
Consumer Financial Protection Bureau and others.
Zions Chief Executive Harris Simmons has long said that
postcrisis regulations have hurt his bank's ability to grow and
serve customers, and that different regulatory agencies often
overlap or work for competing objectives. In an interview, he said
he hoped Zions' potential new structure would be more efficient for
both the bank and regulators.
"One of the scarce resources in life is time," Mr. Simmons said.
"This is not a business that requires multiple federal regulators
conducting the same set of exams."
Some Dodd-Frank defenders say firms like Zions shouldn't be
allowed to skirt tougher rules, pointing to lenders like IndyMac
Bank that, while small, contributed to the 2008 financial
crisis.
Zions would employ a two-step legal strategy. Dodd-Frank
specifies that stricter regulations kick in for bank holding
companies once they reach $50 billion in assets, as well as some
non-banks. But if the bank sheds its holding company, it earns the
right to petition the oversight council, known as FSOC, to repeal
its label. The council has previously voted to free insurer
American International Group Inc. and General Electric Co.'s
financing arm from the heightened regulations.
Lawmakers might free banks like Zions on their own. Last week, a
bipartisan Senate agreement proposed raising the threshold from $50
billion to $250 billion where the higher regulations kick in.
Zions has previously expressed support for raising the limit.
But the bank has been working on its current legal strategy for
over a year and didn't want to wait for a bill that is still in its
early stages, according to a person familiar with the company.
To get rid of its holding company, Zions would need to hold a
shareholder vote. It would also need consent from the OCC and might
need consent from the Federal Deposit Insurance Corp., according to
a person familiar with the process.
Zions would also be by far the largest bank in recent memory to
extinguish its holding company. Recently, two smaller banks, Bank
of the Ozarks in Little Rock, Ark., and BancorpSouth Bank in
Tupelo, Miss., shed their holding companies. Both automatically
shed the Federal Reserve as a regulator, but Zions would need
FSOC's permission since it is over $50 billion in assets.
If both changes go through, Zions wouldn't have to take the
Fed-administered annual stress tests that determine how much a bank
can pay its shareholders in dividends. Zions failed the test in
2014, though it has passed every year since then.
Write to Christina Rexrode at christina.rexrode@wsj.com
(END) Dow Jones Newswires
November 20, 2017 15:54 ET (20:54 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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