Coalition of major banks sue the Federal Reserve over stress test

Source: Just The News

A group of banks and business organizations on Tuesday sued the Federal Reserve over the framework of its annual bank stress tests.

The lawsuit, filed in an Ohio court, comes one day after the Fed said it plans to make "significant changes" to the stress tests that provide more transparency, citing an "evolving legal landscape," as demonstrated by recent changes in administrative laws.

The stress tests look at how prepared major U.S. banks are for various economic crises. The most recent looked at how prepared they were for a 40% drop in commercial real estate prices and 36% drop in housing prices, according to the Financial Times.

The reserve on Monday did not indicate any specific changes it would make to the tests, but said it would open the process to public comment soon.

The groups that brought the lawsuit, which includes the Bank Policy Institute (BPI), said they do not oppose stress tests but argued the current framework “produces vacillating and unexplained requirements and restrictions on bank capital," according to CNBC.

The groups also accused the Fed in July of being in violation of the Administrative Procedure Act because it did not seek public comment on its stress tests scenarios and was not transparent in its process and the models it used to project bank losses.

The groups said that although the Federal Reserve's announcement was a good first step, they moved forward with the lawsuit to open keep their options.

“The Board’s announcement today is a first step towards transparency and accountability," BPI CEO Greg Baer said in a statement. “We are reviewing it closely and considering additional options to ensure timely reforms that are both good law and good policy.”

Misty Severi is a news reporter for Just The News. You can follow her on X for more coverage.

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