WASHINGTON — Zions Bancorp. appears to have found a novel approach to escape the added requirements for banks above the Dodd-Frank Act's systemic $50 billion asset threshold, but other banks in a similar position are more likely to wait for Congress to address the issue rather than following suit.
The $65 billion-asset Zions, based in Salt Lake City, said Monday that it will merge its businesses under its national bank and shed its bank holding company by yearend, enabling the bank to petition regulators to rescind its “systemically important financial institution” status. Under Dodd-Frank, banks with assets above $50 billion are SIFIs that face enhanced supervision, but the regime only applies to firms with holding company structures.
Yet Zions’ decision likely will not dampen lawmakers’ attempts to raise the threshold or move away from a numeric trigger, observers said. In fact, some said the bank's strategy could help accelerate legislative activity by focusing attention on the effects of the Dodd-Frank regime.
"Moves like this make legislation more likely because they show the fallacy of the $50 billion threshold," said H. Rodgin Cohen, a partner at Sullivan & Cromwell LLP, who is advising Zions. “When practice starts to define reality, legislation often follows.”
Concurrent with removing its holding company, Zions will ask the Financial Stability Oversight Council to remove its “systemically important” designation. While shedding its holding company would restrict Zions’ activities, freedom from being considered a SIFI will release it from several supervisory obligations under Dodd-Frank.
“There is much evidence that a consensus exists among Washington policymakers that a straightforward regional bank of Zions' size and lack of complexity does not warrant the 'systemically important' appellation,” Zions CEO Harris Simmons said in a press release. “We are optimistic that the FSOC will arrive at that conclusion as well.”
To be sure, Zions would not be the first bank with more than $50 billion that has avoided the SIFI label. The $84 billion-asset First Republic Bank in San Francisco, for example, has always escaped the SIFI designation as a result of not having a holding company. (It crossed the $50 billion line in 2015.)
What that means for banks like First Republic is they do not, for example, have to be part of the Federal Reserve’s rigorous stress test regime known as the Comprehensive Capital Analysis and Review. Still, the bank does face some SIFI-like scrutiny. Most notably, it must submit a “living will” to the Federal Deposit Insurance Corp. and it is subject to another stress test.
A few other banks are said to be considering following Zions' lead, while smaller banks well below the $50 billion SIFI threshold — including the $19 billion-asset Bank of the Ozarks in Little Rock, Ark., and the $15 billion-asset BancorpSouth in Tupelo, Miss. — have recently shed their holding company status because they do not see as much benefit to the consolidated structure as they did before.
“If you look forward, are there banks that are bigger that could do it? The answer is yes. We don’t think there are a lot that qualify, but there would certainly be some,” James Abbott, director of investor relations at Zions, said in an interview. “We think there could be others that are smaller that can maybe consider this. It is all about simplification.”
V. Gerard Comizio, a partner at Fried Frank, said some companies are making the determination that the benefits of holding company status are not as clear as they once were.
“If you don’t have a strategic need for a bank holding company and it’s not required, then why do you have it? Or put another way, why shouldn’t you get rid of it immediately? It just constitutes unnecessary corporate governance and compliance costs,” he said. “Since bank holding companies began being formed over 30 years ago, all of the perceived advantages that were thought to exist at that time no longer exist, and the disadvantage of bank holding company regulation has substantially increased.”
But others see the number of banks that might try to lose their SIFI status by jettisoning their holding company as limited. Banks with varied activities in multiple subsidiaries still find appeal in a consolidated holding company structure.
“Regional banks that extend credit and take deposits could try to mimic what Zions is doing. But banks that have a more complex business mix are likely to have a much tougher time following suit,” Jaret Seiberg, an analyst at Cowen Washington Research Group, said in a client note.
Seiberg noted that Zions’ “move may be less important” with the likelihood that “Congress will raise the SIFI level later this year.”
Even some Democrats have agreed with the need to raise the $50 billion SIFI threshold. Last week, Senate Banking Committee Chairman Mike Crapo, R-Idaho, announced that he had brokered a bipartisan deal that would make a number of changes to the 2010 financial reform law, including raising the threshold to $100 billion immediately and then increasing it again to $250 billion after 18 months. A panel vote on the bill is scheduled for Dec. 5, and analysts believe the legislation can become law.
Seiberg said institutions’ possible attempts to consolidate activities into their FDIC-insured banks, as a means to lose their holding company, could get some political blowback over concerns of an expanded safety net. But moves like that of Zions could also heighten attention to the SIFI issue, which could help the legislative effort.
“The effort by Zions to drop the holding company could actually be the excuse some in Congress need to support a higher SIFI designation level,” Seiberg said. “The argument will be that banks already are trying to restructure around a size threshold that most agree is too low. It would be similar to how the merger of Travelers and Citigroup helped get [the] Glass-Steagall repeal across the finish line in 1999.”
Some also raised the prospect of Zions’ strategy being moot if the process for seeking a change in status is so prolonged that legislation raising the asset threshold gets enacted first.
“The practical bottom line here is, this isn’t going to matter, assuming that [a bill] gets passed,” said an industry attorney, who spoke on the condition of anonymity. “The bureaucratic thing to do here is to accept the application from Zions, then have it take six or seven months to handle. Then the law is passed and everybody’s happy.”
John Heltman, Jackie Stewart, Alan Kline and Ian McKendry contributed reporting to this article.