America’s Biggest Banks To Sue Fed Over Annual Stress Tests: Report

The nation’s largest banks are planning to sue the Federal Reserve over their required annual stress tests, CNBC reports, noting that the lawsuit is expected this week and could come as soon as Tuesday morning.

The tests determine how much capital banks must set aside to meet their obligations, as well as dictate the scope of stock buybacks and dividend payouts.

The report comes one day after the Fed announced that it’s mulling major changes to stress tests and will be seeking public comment on “significant changes to improve the transparency of its bank stress tests and to reduce the volatility of resulting capital buffer requirements.”

According to the Fed, it’s changing the tests because of “the evolving legal landscape” related to changes in administrative laws in recent years.

the stress tests which every bank passes every time, especially the insolvent California banks https://t.co/mMlL8FLBbW

— zerohedge (@zerohedge) December 24, 2024

Greg Baer, CEO of the Bank Policy Institute (BPI) which represents big banks such as Citigroup, Goldman Sachs and JPMorgan, welcomed the Fed announcement, saying in a statement “The Board’s announcement today is a first step towards transparency and accountability.”

That said, it may be too little too late for the banks. “We are reviewing it closely and considering additional options to ensure timely reforms that are both good law and good policy,” Baer continued.

Groups like the BPI and the American Bankers Association have raised concerns about the stress test process in the past, claiming that it is opaque, and has resulted in higher capital rules that hurt bank lending and economic growth. -CNBC

In July, the BPI accused the Fed of being in violation of the Administrative Procedure Act after failing to seek public comment on its stress scenarios, as well as for keeping its supervisory models a secret.

Makes sense, strict technical covenants are curbing banks’ lending flexibility. No surprise they’re pushing back at the Fed over stress tests—too many ‘hard stops’ on what actually works in real-world lending.

— Chris Ceausu (@ChrisCeausu) December 24, 2024

“Regulator” ?

Protector is more accurate. That is the Fed’s reason for existence, to protect the big banks. That is their one and only mandate.

The Fed was created by big banks for that purpose, to protect them & eliminate competition from smaller banks, under the guise they…

— Stan Stinson (@Stan_Stinson) December 24, 2024