Some banks and business groups are suing the Fed over annual bank stress tests.
Bank Policy Institute representing the big banks JPMorgan Chase, Citigroup and Goldman SachsThe lawsuit is being filed along with the American Bankers Association, the Ohio Bankers Federation, the Ohio Chamber of Commerce and the U.S. Chamber of Commerce, who say the move is intended to “address long-standing violations by subjecting the stress testing process to public comment as required,” according to Federal Law. “
The groups said they were not opposed to stress tests but that the current process was flawed and “created erratic and unexplained requirements and constraints on bank capital”.
CNBC earlier reported plans to file a lawsuit.
The Fed’s stress test is annual ritual This forces banks to maintain adequate buffers against bad loans and determines the size of share buybacks and dividends.
After the close on Monday, the Fed announced in a statement, seek change bank stress tests and will seek public comment on what it calls “significant changes designed to increase the transparency of bank stress tests and reduce the volatility of resulting capital buffer requirements.”
The Fed said it decided to change the test due to the “evolving legal environment,” citing changes in administrative law in recent years. It did not outline any specific changes to the annual stress testing framework.
While big banks may see these changes as a win, it may be too late.
Additionally, the changes may not be enough to satisfy banks’ concerns about onerous capital requirements. “These proposed changes are not intended to have a material impact on overall capital requirements,” the Fed said.
BPI CEO Greg Baer welcomed the Fed’s announcement, saying in a statement that “the Board’s announcement today is the first step toward transparency and accountability.”
However, Bell also hinted that further action will be taken, “We are carefully reviewing and considering other options to ensure that reforms are implemented in a timely manner, which is both good law and good policy.”
Groups such as BPI and the American Bankers Association have raised concerns in the past about the stress testing process, claiming it was opaque and led to higher capital rules that hurt bank lending and economic growth.
In July, the groups accused the Fed of violating the Administrative Procedure Act because it failed to solicit public comment on its stress scenarios and kept its regulatory model secret.
Read the details of the complaint here.
— CNBC’s Hugh Son contributed to this report.
