Major Banks Sue Federal Reserve Over 'Opaque' Stress Tests, Seek More Public Input

Dec 24, 2024, 02:09 PM

Major banks and business groups, including JPMorgan, Citigroup, and Goldman Sachs, along with the Bank Policy Institute, the American Bankers Association, the U.S. Chamber of Commerce, and local Ohio trade groups, have filed a lawsuit against the Federal Reserve. The lawsuit challenges the central bank's annual stress tests, which assess banks' resilience against hypothetical economic downturns. The plaintiffs argue that the Fed's process lacks transparency and does not allow for adequate public input in the design of the stress tests. The lawsuit, filed in the U.S. District Court for the Southern District of Ohio, does not aim to eliminate the stress tests but seeks to open up the scenario design and the models used for determining capital changes to public comment. This legal action comes a day after the Fed announced plans to seek public comment on significant changes to improve the transparency of the stress tests and reduce the volatility of capital requirements. The Fed's proposed changes include disclosing stress test models and scenarios, averaging results over two years, and not materially affecting overall bank capital requirements. The lawsuit does not seek to mandate changes to or stop the upcoming 2025 stress testing process or alter capital planning requirements put in place following the 2024 exams.