Mid-sized regional banks, including Zions Bancorp (ZION) and Huntington Bancshares Inc. (HBAN) , could get a stock-price boost after a top Democrat suggested Thursday the possibility of a deal to reduce some of their regulatory requirements.
"I am optimistic that there is room for agreement on a modified regime for overseeing regional banks," Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee, said at a hearing focused on such lenders. His support would be pivotal since any bank legislation approved by Congress will likely need the backing of some Democratic lawmakers. Republicans have only a 52-seat majority and 60 votes are needed to prevent a filibuster.
Brown pointed to concerns raised by mid-size banks suggesting that liquidity requirements for them may "impose the most burdens with the least amount of benefits to financial stability."
He made the same point on so-called stress tests and living wills that mid-size banks and regional institutions must undergo, along with their larger rivals. Stress tests are designed to identify whether a financial institution has enough capital to withstand a financial crisis similar to the one that shook the economy in 2008, and living wills are plans that banks develop to unwind themselves without damaging the financial system in the event of a failure.
"We have heard that these two rules [stress tests, living wills], plus liquidity requirements, may impose the most burdens with the least amount of benefits to financial stability, when they are applied to regional banks," Brown said. "I look forward to working with the chairman and our colleagues to explore what might make the oversight regime work better for both midsize and regional banks, as long as financial stability, safety and soundness, and consumer protections are not compromised."
A key issue will be whether legislation helps regional banks that top the government's $50 billion threshold for Systemically Important Financial Institutions, which are subjected to stricter oversight under the Dodd-Frank reform law, but are much smaller than global rivals, a few of which have assets in the trillions.
A recent Treasury Department report suggested that the tough restrictions have created barriers for regional and mid-sized banks at the same time that they are "contributing to the solidification of the market position of the largest" banks, which are still objects of public ire after receiving billions in bailouts during the financial crisis.
The report recommended that the $50 billion threshold be lifted but did not provide details about how high it should go.
As expected, Senate Banking Committee chief Sen. Mike Crapo, R-Idaho, sought to make the case that the SIFI threshold is too low. "If banks over $50 billion were not subject to the SIFI threshold, isn't it true that they are still subject to extensive safety and soundness regulations?" Crapo asked. "There is bipartisan agreement that a bank is not systemic if it is above $50 billion in assets."
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