On Tuesday, trade groups for the biggest U.S. banks sued in federal court to make the U.S. Federal Reserve’s bank stress tests more open. These tests were put in place after the global financial crisis of 2008, but the Fed has already suggested some changes to the yearly process.
The lawsuit in the U.S. District Court for the Southern District of Ohio says that the Fed’s stress-test scenarios might not be realistic. It also says that the annual process that banks have to go through limits lending, which would be good for the economy.
Federal law says that the American Banks Association, the Bank Policy Institute, the U.S. Chamber of Commerce, and the Ohio Bankers League must let the public have a say in the stress-test process. This is what the claimants said.
An industry group said in a statement, “Stress testing has direct effects on banks’ ability to support American households and businesses. It also hurts the U.S. economy by slowing job growth, making it harder for capital markets to work together, and raising the cost of credit.”
There aren’t many times when trade groups for the banking business sue the U.S. Federal Reserve, but it does happen sometimes.
For example, the FDIC, the U.S. Federal Reserve, and the Office of the Comptroller of the Currency are being sued over an update to the Community Reinvestment Act that will last for several years.
The plaintiffs said they were glad to see the Fed take a new step to suggest changes to the stress-test procedures, but they chose to go ahead with the lawsuit anyway because they didn’t know what would happen with any changes.
The trade groups said the change won’t affect the stress tests that are coming up in 2025, but they want to see changes by 2026.
The Fed’s plan that aired late Wednesday night was a step in the right direction, but the trade groups said they still filed the lawsuit.
An official from the Federal Reserve wouldn’t say anything about the lawsuit.
Late Tuesday night, the U.S. Federal Reserve said it was going to suggest changes, such as making “all of the models that determine the hypothetical losses and revenue of banks under stress” public and asking for feedback on them.
Before the scenarios are finalised, the Fed said it would let the public speak on its hypothetical scenarios that are used every year for the test.
