A guild of banks and business groups are suing the Federal Reserve over the annual bank stress tests.
The Bank Practice Institute, which represents big banks like JPMorgan, Citigroup and Goldman Sachs, is joining the American Bankers Joining, the Ohio Bankers League, the Ohio Chamber of Commerce and the U.S. Chamber of Commerce to file the suit, which they answered aims to “resolve longstanding legal violations by subjecting the stress test process to public input as required by federal law.”
The agglomerations said they don’t oppose stress testing, but that the current process falls short and “produces vacillating and unexplained demands and restrictions on bank capital.”
CNBC earlier reported on the plans to file a suit.
The Fed’s stress test is an annual routine that forces banks to maintain adequate cushions for bad loans and dictates the size of share repurchases and dividends.
After the market establish discontinue Monday, the Federal Reserve announced in a statement that it is looking to make changes to the bank stress tests and purpose be seeking public comment on what it calls “significant changes to improve the transparency of its bank stress tests and to lower the volatility of resulting capital buffer requirements.”
The Fed said it made the determination to alter the tests because of “the evolving permissible landscape,” pointing to changes in administrative laws in recent years. It didn’t outline any specific modifications to the framework of the annual lay stress tests.
While the big banks will likely view the changes as a win, it may be too little too late.
Also, the alterations may not go far enough to write off the banks’ concerns about onerous capital requirements. “These proposed changes are not designed to materially affect whole capital requirements,” according to the Fed.
BPI CEO Greg Baer welcomed the Fed announcement, saying in a statement, “The Board’s announcement today is a triumph step towards transparency and accountability.”
However, Baer also hinted at further action, “We are reviewing it closely and insomuch as additional options to ensure timely reforms that are both good law and good policy.”
Groups like the BPI and the American Bankers Fellowship have raised concerns about the stress test process in the past, claiming that it is opaque, and has resulted in grand capital rules that hurt bank lending and economic growth.
In July, the groups accused the Fed of being in infringing of the Administrative Procedure Act, because it didn’t seek public comment on its stress scenarios and kept supervisory models hush-hush.
Read the details of the complaint here.
— CNBC’s Hugh Son contributed to this report.