NEW YORK (AP) — The nation’s largest banks are preparing to sue the Federal Reserve over its annual stress testing process, with legal action expected as early as Tuesday, according to a source familiar with the matter.
The Fed announced Monday after market close that it would seek public comment on “significant changes” to improve stress test transparency and reduce capital buffer requirement volatility, citing “the evolving legal landscape.”
Despite this concession, banks appear poised to proceed with litigation. The Bank Policy Institute (BPI), representing major institutions like JPMorgan, Citigroup, and Goldman Sachs, called the announcement “a first step towards transparency and accountability,” but indicated it’s “considering additional options.”
The annual stress tests determine banks’ capital requirements and their ability to conduct share buybacks and pay dividends. Banking groups have long criticized the process as opaque, arguing it imposes excessive capital requirements that restrict lending and economic growth.
In July, industry groups alleged the Fed violated the Administrative Procedure Act by not seeking public comment on stress scenarios and keeping supervisory models private.
The Fed emphasized its proposed changes aren’t intended to “materially affect overall capital requirements,” suggesting the modifications may not fully address banks’ concerns.
“These proposed changes are not designed to materially affect overall capital requirements,” the Fed stated, maintaining its regulatory stance despite industry pressure.
