WASHINGTON — Sen. Jon Tester, D-Mont., and Sen. Jerry Moran, R-Kan., introduced legislation Wednesday that would raise the stress testing threshold for small and community banks to $50 billion of assets.

Currently, banks with assets of $10 billion or more must run their own stress test and may also face an additional test from regulators. The bipartisan bill would eliminate the bank-run stress tests for the 72 institutions that currently have assets of $10 billion to $50 billion. It would leave in place, however, the ability for regulators to stress test the institution if they deem it necessary.

“Community and midsized banks did not cause the last financial crisis and they shouldn’t have to pay for it with expensive and burdensome regulations,” said Tester, a member of the Senate Banking Committee.

Sen. Jon Tester, D-Mont.
“Community and midsized banks did not cause the last financial crisis and they shouldn’t have to pay for it with expensive and burdensome regulations,” said Sen. Jon Tester, D-Mont. Bloomberg News

Community and midsize banks are unable to hire full-time staff dedicated to stress testing and are often forced to hire outside firms to create the models necessary to test scenarios that sometimes might not be relocatable to their business model.

“Small businesses need access to capital that community and midsized banks provide,” said Moran. “This legislation will eliminate unnecessary regulations that inhibit local lenders from providing the credit necessary for Kansans and Americans to help grow the economy through small-business job creation and homeownership.”

With the rancor on Capitol Hill between Democrats and Republicans reaching new heights, the bill introduced by Tester and Moran is a promising sign that there may be changes to the Dodd-Frank Act to which both sides can agree.

“The Dodd-Frank Act, without real analysis, inserted artificial asset thresholds within the regulatory system,” said James Ballentine, executive vice president of the American Bankers Association. “The approach taken in the proposal both removes stress testing for some institutions and grants more flexibility to regulators to determine when a company-run stress test is needed for other institutions.”

The senators also reintroduced a bill that would allow mortgages held in portfolio by banks with assets of less than $10 billion to automatically meet the Consumer Financial Protection Bureau’s Qualified Mortgage definition.

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