Zions to Challenge Its 'Big Bank' Label -- 3rd Update

By Christina Rexrode Features Dow Jones Newswires

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.

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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.

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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)