Washington, D.C., USA: The Financial Stability Oversight Council (Council) today announced that it has made a proposed decision to grant the appeal of ZB, N.A. (Zions) under section 117 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Dodd-Frank Act provides for the Council to report to Congress on any proposed decision under section 117, and subsequently to make a final decision regarding the company’s appeal.
“The Council conducted a careful analysis of Zions’ business and found that there is not a significant risk that Zions could pose a threat to U.S. financial stability,” said Treasury Secretary Steven T. Mnuchin. “In appropriate cases, the Council’s use of this authority promotes regulatory efficiency and enables better service to customers and communities.”
If the Council makes a final decision to grant ZB’s appeal, ZB will not be treated as a designated nonbank financial company upon completion of ZB’s proposed merger with its parent bank holding company, Zions Bancorporation.
Section 117 of the Dodd-Frank Act applies to any entity (or successor entity) that: Was a bank holding company with total consolidated assets of at least $50 billion as of January 1, 2010; and received financial assistance under or participated in the Capital Purchase Plan established under the Troubled Asset Relief Program.
If an entity subject to section 117 ceases to be a bank holding company, it will be treated as a nonbank financial company supervised by the Board of Governors of the Federal Reserve System. Section 117 provides that an entity may appeal its treatment as a designated nonbank financial company to the Council.
The Council is required by section 117 to make a final decision regarding Zions’ appeal within 60 days, subject to potential extension. The Council unanimously approved the proposed decision.
Zions said Wednesday it appreciated the decision and anticipates completing the reorganization by September. The move “is helping us achieve a streamlined organizational structure that will help ensure that the bank is able to better meet the needs of the customers and communities it serves, while continuing to operate in a safe and sound manner,” Chief Executive Harris Simmons said in a statement.
Zions also said it got approval from the Office of the Comptroller of the Currency, which will be the primary federal regulator of the bank.
The Financial Stability Oversight Council’s proposed unanimous decision, announced Wednesday, is a win for Utah-based Zions, which is employing a novel legal strategy to avoid stricter regulations that apply to the largest U.S. banks.
While the 2010 Dodd-Frank financial law automatically applied stricter Fed rules to banks with greater than $50 billion in assets, it also gave the oversight council the ability to exempt banks from those rules.
Zions has about $66 billion in assets, making it one of the smallest firms subject to the tougher Dodd-Frank rules.
Zions would be the first firm to take advantage of that exemption by shedding its Fed-regulated holding company and then winning a ruling from the oversight council that it isn’t “systemically important” to the U.S. financial system.
It isn’t clear whether other banks will follow in Zions’ footsteps. Congress this spring raised the $50 billion asset thresholdto $100 billion and gave the Fed the authority to exempt banks with as much as $250 billion in assets. The new law got Zions out from some regulations, including mandatory annual stress tests.