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Various association, including the American Bankers Association, The Bank Policy Institute, Ohio Bankers League filed litigation in late December against the Federal Reserve, challenging aspects of the stress testing framework the Fed uses to establish certain bank capital requirements.
The lawsuit is focused on the lack of transparency in the current stress testing process, with the groups challenging the “opaque aspects” of the framework and claiming it violates federal laws including the Administrative Procedure Act, which prohibit agencies from regulating in secret. The groups reiterated they do not oppose stress testing or capital requirements, which they said are “instrumental to the safety and soundness of the U.S. financial system.”
On Dec. 23, the Fed announced it is considering changes to the bank stress tests and will seek public comment on what it called “significant changes to improve the transparency of its bank stress tests and to reduce the volatility of resulting capital buffer requirements.” The Fed said it is exploring the change due to “the evolving legal landscape.” In filing last week’s lawsuit, the groups acknowledged the Fed’s announcement as a positive step, but they say the litigation is still needed to preserve the plaintiffs’ legal rights given an upcoming statute of limitations deadline.