NEW YORK ( TheStreet) -- Democratic and Republican lawmakers at a Senate Banking Committee hearing Tuesday were widely divided over whether to ease the regulatory burden on regional banks.

However, there appeared to be some consensus about giving federal regulators more flexibility designing rules for so-called "living wills." These documents, formally known as resolution plans, would be submitted by regional banks to explain how they would dismantle themselves in bankruptcy during a crisis.

"I am sympathetic to cutting down some of the costs without reducing the standards," said Sen. Mark Warner, D-Va., at the Senate banking hearing examining regional U.S. banks and systemic risk. "The living will process makes sense but the idea that living wills must be done repeatedly every year even if there are no major changes" might be too burdensome.

Questions around living wills were included in a wide-ranging discussion at the committee examining a "systemically important financial institution" designation federal regulators imposed on banks with more than $50 billion in assets, a categorization that subjects these firms to new capital, leverage and liquidity restrictions, as well as Federal Reserve System stress tests and obligations to set up risk committees and write annual "living wills." The threshold and regulatory burden is becoming a key factor many banks must consider as they contemplate M&A activity.

The focus of the hearing was on whether the threshold should be raised to $100 billion or $500 billion, with Republicans arguing that a number of smaller regional banks deserved to be exempted from the tougher rules because they didn't cause the crisis. However, for legislation to move forward it likely will need to have some element of bipartisanship, and except for easing restrictions on the living wills, Democrats weren't on board.

During the debate some Democrats and Republicans appeared open to allowing regional banks to submit their living wills once every couple years or even less frequently if no major changes occurred to their structure in the intervening period. Sen. Richard Shelby, R-Ala., chairman of the committee, told reporters after the hearing that the panel needs to take a closer look at whether it should give regulators more flexibility when it comes to living wills. "I don't know if any regional bank has created systemic risk to the economy whereas we know the big ones have," he said.

Sen. Sherrod Brown, D-Ohio, the top Democrat on the committee, asked the panel members whether the post-crisis Dodd-Frank Act, written after the 2008 financial crisis, gives federal regulators the flexibility to lift the threshold and exclude smaller regional banks from the living will requirement. "The statute is a bit confusing but it appears they [Feds] can't lift the resolution plan threshold."

However, a person familiar with Brown's thinking suggested that the senator's staff believes that the Fed could ease restrictions on living wills on its own.

Beyond living wills, no consensus was reached over generally raising the threshold. Mark Olson, co-chair of the Bipartisan Policy Center's Regulatory Architecture Task Force, floated a proposal suggesting that the threshold be raised to $250 billion and greater, while giving regulators the flexibility to employ an activities test to determine if other banks should be designated. Even it received some resistance, not just from Democrats but at least one Republican. 

Sen. Bob Corker, R-Tenn., told the committee that he had concerns about giving the Federal Reserve or an interagency panel known as the Financial Stability Oversight Council, or FSOC, the responsibility for identifying systemically risky banks and designating them.

"I do have trepidation of punting again to the regulators," said Sen. Bob Corker, R-Tenn., "I'm not sure I want to punt again, especially not to FSOC which I don't believe is functioning."

Sen. Elizabeth Warren, D-Mass., also took issue with the concept of a multi-factor test, which would require the Fed to conduct an intensive study of mid-sized and larger banks to decide whether they should be subject to higher standards. "This proposal would require the Fed to spend a lot more time on an administrative task and less time on supervising and regulating the riskiest banks," she said.

She also warned that several mid-sized regional banks failing at the same time could also cause a systemic crisis. "We learned or should have learned in the 2008 crisis that several banks can find themselves on the verge of failure at the same time," Warren said. "Would it pose a systemic threat if two or three banks with about $50 billion on book in assets were on the verge of failure?"

It is possible that legislators could seek to give regional banks some relief from annual stress tests, which evaluate whether a big bank has enough capital to survive a hypothetical financial crisis.

At a banking panel held last week, Federal Reserve Governor Daniel Tarullo suggested that he would support legislation raising the regulatory threshold to $100 billion, arguing that the central bank would like some "administrative flexibility" when it comes to annual stress testing for the regional banks.

Following up on those comments, Deron Smithy, executive vice president and Treasurer at Regions Financial Corp. (RF), a bank with $120 billion in assets, urged the Fed to give his institution relief from some aspects of the Fed's tests. He believes stress tests are helpful and have been included in the bank's internal methodologies. However, he raised concerns about how the Federal Reserve's test results require banks to allocate capital in accordance with how it sees risks unfolding. He said that the Fed sees greater risk in commercial real estate assets than Regions does with its own internal tests, which requires the bank to hold more capital as a buffer against losses in that asset class. "That becomes capital and liquidity surplus that we have to hold to manage that risk even though we don't see the risk that way and the unintended consequence is that if we try to recover those costs for the risk that the Fed tells us is inherent in that loan we would be priced out of the market," he said.

Shelby reiterated to reporters that he likely would back repealing a provision in the 1999 Gramm-Leach-Bliley Act that permits Goldman Sachs (GS) - Get Report and Morgan Stanley (MS) - Get Report to continue to own a physical commodity business if they owned it before September 1997. A move by lawmakers to prohibit the two big banks from that sector would require that they divest assets.

"I have interest in everything that would level the playing field," Shelby said. "You always wonder why one or two banks get special privileges over other banks."