(Bloomberg Law) — Banking industry groups challenge the Federal Reserve’s design of stress tests for banks, in a lawsuit seeking to force the central bank to open the test design to public comment. He said the government did not allow appropriate public input.
Most Read Articles on Bloomberg
The lawsuit, filed Tuesday in the U.S. District Court for the Southern District of Ohio, seeks to eliminate annual stress testing and capital planning requirements that have been in place since 2009 as part of the government’s response to the 2008 financial crisis. I’m not asking for it.
Instead, the Bank Policy Institute, American Bankers Association, U.S. Chamber of Commerce, and two local trade groups in Ohio predict that the Fed will measure banks’ capital and liquidity levels against a hypothetical recession. We are about to release the scenario design. Industry associations are also seeking input through a notice and comment rulemaking process on the models used to determine capital changes and other aspects of the stress testing process.
“The current opaque regime, combined with global market shocks and a lack of clear standards for operational risk bearing, continues to create inaccurate, unstable and excessive capital burdens,” said BPI President and CEO. “As a result, lending and economic growth have declined.” Greg Baer said in a statement.
The lawsuit does not seek to mandate or halt any changes to the upcoming 2025 stress testing process or change any capital planning requirements put in place after the 2024 test.
The Fed declined to comment.
The results of the Fed’s stress tests could have a major impact on bank finances.
The Fed uses this result to set mandatory stress capital buffers to protect against financial shocks. The central bank can also refuse to buy back shares or pay dividends to banks that perform poorly on tests.
The lawsuit comes just a day after the Fed announced upcoming changes to its stress testing process.
The central bank plans to average banks’ resilience over two years instead of the current one-year period. The Fed also plans to publish scenario designs for notice and comment on the rulemaking, the agency said in a Dec. 23 release.
In a Dec. 23 announcement, the Fed said that recent administrative laws, such as the U.S. Supreme Court’s June decision in Roper-Bright Enterprises, Inc. v. Raimondo, which eliminated judicial deference to regulators, known as the Chevron Principles, Approved the change.
