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A U.S. banking lobby announced Tuesday it has filed a lawsuit against the Federal Reserve over the central bank’s stress testing framework, in a major escalation in relations between the industry and regulators.
The announcement came a day after the Fed announced plans for “substantial changes” to its annual stress tests for large U.S. banks to make the process more transparent and reduce the volatility of the results.
“While we appreciate the Board’s announcement as a first step toward transparency and accountability, we believe this lawsuit is necessary to protect our legal rights,” said one of the five industry groups. said Greg Baer, ​​president and chief of the Bank Policy Institute, one of the banks. Plaintiffs in the lawsuit. This is the first lawsuit filed by BPI against the Federal Reserve.
The Fed declined to comment.
The lawsuit, filed in federal court in Ohio, comes ahead of a lobbying group announcing a February deadline for court challenges to parts of the stress testing rules.
This also reflects a more proactive approach by the banking industry in recent years. In 2023 and 2024, lobbying groups ran a combative advertising campaign against the Fed’s proposed new capital controls, the so-called Basel III endgame, and the lobbying groups threatened to file lawsuits.
The Fed has since scaled back its Basel III endgame plans, and the final outcome will be influenced by the incoming administration of Donald Trump.
The industry is currently undergoing stress testing, an annual examination of the nation’s largest banks, including JPMorgan Chase, Goldman Sachs and Bank of America, to determine how well they can withstand a series of catastrophic economic scenarios. I’m aiming.
The latest test looked at how banks would cope with a 40% drop in commercial property prices and a 36% drop in house prices.
The Fed uses the results to calculate overall requirements for bank capital that can be used to absorb losses.
Stress tests played a role in restoring confidence in the banking sector after the 2008 financial crisis. But it has recently come under fire for a lack of transparency in the models used in the process and for the variability in results from year to year.
In its lawsuit, the banking group said it does not oppose annual stress tests, but seeks greater visibility into the process and the models used to predict banks’ losses.
The group argued that the Fed’s proposed changes to its stress testing framework could address the industry’s concerns, but it filed the lawsuit to keep its options open.
The bank aims to implement some changes for the 2026 stress test cycle.
Most of the bank’s lawsuits were brought under the Administrative Procedure Act, which governs how government agencies create and enforce rules. A U.S. Supreme Court decision earlier this year curtailed government agencies’ rule-making freedom.
Banks are asking the Fed to make stress-test models and scenarios public, and to allow them to publish and comment on future models.
