The restructuring process that begun with an aim to “reduce or eliminate operating and regulatory burdens and inefficiencies” and lower operating expenses is finally coming to an end. Zions Bancorporation (ZION - Free Report) has received regulatory approval for the removal of the “systemically important financial institution" (SIFI) label.
The Financial Stability Oversight Council (FSOC) voted 9 to 0 to remove Zions from SIFI list, thereby, freeing the bank from stricter regulatory oversight by the Federal Reserve. This follows the preliminary approval by the FSOC in July.
Notably, the removal is contingent upon completion of the merger of its holding company with its bank, ZB NA. Now the bank intends to hold a special shareholder meeting on Sep 14 for getting their consent for the merger. If approved, this merger is expected to be closed by Sep 30.
Treasury Secretary, Steven Mnuchin, stated that he was pleased with the council’s decision that "there is not a significant risk that Zions could pose a threat to U.S. financial stability."
What This Means for Zions?
Zions undertook a number of initiatives to consolidate its several branches. Further, in 2015, the company consolidated its seven subsidiary banks into a single national bank charter.
With consolidated assets of nearly $65 billion, Zions is one of the smallest financial institutions that was part of the SIFIs. Per provisions of the 2010 Dodd-Frank Act, banks with more than $50 billion in assets were considered SIFIs. Nonetheless, passage of the Economic Growth, Regulatory Relief and Consumer Protection Act this May will eventually raise the threshold to $250 billion.
Banks with assets in the range of $50-$100 billion got immediate relief, while those with assets between $100 billion and $250 billion will be exempted by November 2019. Thus, other than Zions, SunTrust (STI - Free Report) , BB&T Corporation (BBT - Free Report) and Citizens Financial Group, Inc. (CFG - Free Report) are the other banks that will eventually be exempted.
The SIFIs have to abide by various capital requirement rules and there is a lot of scrutiny that this regulatory label carries with itself. This is because failure of any of these companies can pose a threat to the global financial system. Further, these institutions are required to undergo annual stress tests and submit so-called ‘living wills’, both necessitated as measures to plan for financial disasters.
Thus, with the removal of the SIFI label, Zions’ regulatory compliance costs are expected to come down. Notably, the bank was exempted from being subject to the stress tests from this year itself. This provides the company with financial flexibility to announce capital-deployment actions. In July 2018, the bank authorized repurchase of up to $185 million of shares in third-quarter 2018 and increased quarterly dividend by 25%.
Zions’ shares have rallied 9.5% so far this year, outperforming the 2.8% gain for the industry it belongs to.
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