More Banks Would Escape Stress Tests Under Bipartisan Bill

By Rob Tricchinelliand Jeff Bater

Midsize banks would be spared stress testing under a bipartisan bill meant to spur loans to small businesses.

Banks with assets above $10 billion are required under Dodd-Frank to perform stress tests on their balance sheets. Legislation (S. 1139) introduced by Sens. Jon Tester (D-Mont.) and Jerry Moran (R-Kan.) would raise that asset threshold to $50 billion.

The bill, however, would leave in place interagency guidance allowing banking regulators to perform stress tests on banks with assets of more than $10 billion if such an exercise is deemed necessary in order to protect consumers in case of an economic downturn.

The banking industry praised the bill as a first step toward adjusting a process put in place after the 2008 crisis.

“The Dodd-Frank Act, without real analysis, inserted artificial asset thresholds within the regulatory system,” James Ballentine, executive vice president at the American Bankers Association, said in a post on the group’s website. “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.”

More Money for Lending

Unlike large Wall Street operations, Main Street banks have to hire outside firms to create complex economic models to run the tests, the senators said in a statement. They said their bill would reduce the regulatory burden on 72 small and midsize banks in the U.S. and free up money for loans.

“Small businesses need access to capital,” Moran said.

Aside from the company-run exercises addressed by the Tester-Moran bill, stress testing is also performed on larger banks by regulators. The Federal Reserve conducts an annual Comprehensive Capital Analysis and Review (CCAR) on banks with assets above $50 billion.

The CCAR includes quantitative and qualitative assessments of capital plans of banks with more than $50 billion in assets. In January, the Fed tweaked the review by relieving large regional banks — those with assets below $250 billion — from its qualitative side. Daniel Tarullo, in an April speech before stepping down as Fed governor, suggested the qualitative review be phased out for all big banks.

Bipartisan Bill

Tester serves on the Senate Banking Committee and Moran is a former member. Another committee member, Sen. Heidi Heitkamp (D-N.D.), is a bill co-sponsor.

Their proposal represents a bipartisan attempt to provide relief to smaller lenders. Earlier in the week, Senate Majority Leader Mitch McConnell (R-Ky.) suggested Democrats were standing in the way of changes to Dodd-Frank that would help community banks, which are institutions with assets below $10 billion.

Sen. Sherrod Brown (D-Ohio), the ranking member of the Banking Committee, responded with a statement underscoring Democrats’ commitment to smaller banks.

To contact the reporter on this story: Rob Tricchinelli in Washington at; Jeff Bater in Washington at

To contact the editor responsible for this story: Michael Ferullo at

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