Panorama of the Federal Reserve Bank building in Washington, USA.
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The largest banks are planning to sue the Federal Reserve over annual bank stress tests, people familiar with the matter said. A lawsuit is expected to be filed this week, possibly as soon as Tuesday morning, the person said.
The Fed’s stress tests are an annual ritual that forces banks to maintain adequate buffers against bad loans and determines the size of stock buybacks and dividends.
After the market close on Monday, the Federal Reserve announced in a statement that 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 changing legal environment,” noting 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 (Bank Policy Institute) CEO Greg Baer represents large banks such as JPMorgan Chase, Citigroup and Goldman SachsWelcoming the Fed’s announcement, we said in a statement, “Today’s announcement from the Federal Reserve is the first step toward transparency and accountability.”
However, Bell also hinted at further action: “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 about the stress testing process in the past, 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 by failing to solicit public comment on its stress scenarios and keeping its regulatory model secret.
CNBC’s Hugh Son contributed to this report.
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