US Banks Sue Federal Reserve Over "Lack of Test Transparency"

Banks "Causing Volatility... Requesting Illegal Regulations"
Fed Announces 'Opinion Gathering' but Takes Tough Stance

Major U.S. banks have filed a lawsuit against the Federal Reserve (Fed) over the lack of transparency in the Fed's annual stress tests.

On the 24th (local time), according to foreign media including Bloomberg News, the Bank Policy Institute and the American Bankers Association filed a complaint in the U.S. District Court for the Southern District of Ohio in Columbus, stating that "the Fed's testing criteria are designed in a non-public manner, causing volatility in bank capital and unexplained requirements and restrictions." Organizations such as JPMorgan Chase, Goldman Sachs, and Bank of America argued that these issues are affecting the cost of financial services within the United States.

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed) Photo by Yonhap News

They also requested the court to declare the models and scenarios used in this year's stress tests, as well as those to be applied in 2025-2026, illegal. They further argued that the Fed should allow public input before implementing the testing models.

Stress tests are a system introduced after the 2008 financial crisis to assess the soundness of banks. Regulatory agencies, including the Fed, have been pushing to strengthen capital requirements for large banks as the final phase of the Basel III banking soundness regulations. Concerns about the health of the banking sector have increased, especially following the collapse of Silicon Valley Bank (SVB) last year.

Large banks have opposed regulatory tightening and have been lobbying political circles and others. The Fed announced the day before that it would make major changes to improve the transparency of the tests and reduce volatility in bank capital requirements, and that it would begin public consultations early next year. However, the banks responded strongly by filing a lawsuit just one day after the announcement.