US banking lobby sues Federal Reserve over stress testing framework
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US banking lobby groups on Tuesday said they have filed a lawsuit against the Federal Reserve over the central bank’s stress-testing framework, a major escalation between the industry and the agencies. manage.
This announcement came a day after Fed announced plan for “significant changes” to annual stress tests for major U.S. banks in an effort to make the process more transparent and the results less volatile.
“We appreciate the board’s announcement as a first step toward transparency and accountability,” said Greg Baer, president and director of industry group the Bank Policy Institute, one of the five. accountability, but believes it is necessary to file this lawsuit to protect my legal rights.” plaintiff in the case. This is the first lawsuit BPI has filed against the Fed.
the Fed declined to comment.
The lawsuit, filed in federal court in Ohio, comes ahead of what lobby groups say is a looming February deadline to bring court challenges to some of the defendants. family number. stress test rules.
It’s also more reflective positive approach in recent years in the banking industry. In 2023 and 2024, lobbying groups waged an advertising campaign against the Fed’s proposed implementation of new capital regulations, known as Basel III Endgame, and lobbying groups threatened to sue.
Since then, the Fed has scaled back its plans to hold the Basel III Endgame, and the final outcome will be affected by the incoming Trump administration.
The industry is now looking ahead to stress tests, an annual test to see how well America’s biggest banks – including JPMorgan Chase, Goldman Sachs and Bank of America – can withstand the a series of dire economic scenarios.
the most recent test looked at how banks handled a 40% fall in commercial real estate prices and a 36% fall in house prices.
The Fed uses this result to calculate the overall requirements for bank capital that can be used to offset losses.
Stress tests played a role in restoring confidence in the banking sector after the 2008 financial crisis. But they have recently been criticized for a lack of transparency about the models used in the process and fluctuations in results each year.
In the lawsuit, the banking groups said they do not oppose annual stress tests but are pushing for clearer visibility into the process and models used to predict bank losses.
The groups said the Fed’s proposed changes to the stress testing framework could address industry concerns, but they filed a lawsuit to keep their options intact.
Banks are aiming to apply any changes to the stress testing cycle by 2026.
The majority of the banks’ lawsuits were brought under the Administrative Procedure Act, which regulates how government agencies create and enforce rules. Ruling of the US Supreme Court earlier this year curb authority of agencies in rulemaking.
The banks are seeking to require the Fed to publish its stress test models and scenarios, and to allow public notice and comment on future models.
