Bank Groups Sue Fed, Seeking ‘Transparency’ on Stress Testing Framework

Five groups representing banks and businesses sued the Federal Reserve on Tuesday (Dec. 24), saying its current stress testing framework is “opaque” and violates the law.

The complaint was filed by the American Bankers Association (ABA), the Bank Policy Institute, the U.S. Chamber of Commerce, the Ohio Bankers League and the Ohio Chamber of Commerce, according to a Tuesday press release.

The legal action aims not to eliminate the stress tests, but to subject them to notice-and-comment rulemaking, according to the release. Currently, the Fed conducts the stress tests without providing transparency and makes changes without giving notice and seeking public comment, per the release.

“While we support stress testing as an important risk management tool, ABA has long advocated for the Federal Reserve to increase the transparency of its stress testing program, which shield key components like supervisory models from public view,” Rob Nichols, president and CEO of the ABA, said in the release. “The opaque nature of these tests undermines their value for providing meaningful insights into bank resilience.”

Reached by PYMNTS, the Federal Reserve declined to comment on the lawsuit.

This announcement came a day after the Federal Reserve Board said it will “soon seek public comment on significant changes to improve the transparency of its bank stress tests and to reduce the volatility of resulting capital buffer requirements.”

The Fed said in a Monday (Dec. 23) press release that it is doing this due to the “evolving legal landscape” and plans to begin a public comment process on its changes to the stress test in early 2025.

In the bank and business groups’ Tuesday press release, Bank Policy Institute President and CEO Greg Baer said that the groups “appreciate the Board’s announcement as a first step towards transparency and accountability” but filed the suit to preserve their legal rights.

A statute of limitations on several aspects of the stress test framework expires in February 2025, according to the release.

“For years, we have highlighted serious concerns about the stress testing framework and the need for reform,” Baer said. “The current opaque regime, combined with the lack of clear standards for the global market shock and the operational risk charge, continues to produce capital charges that are inaccurate, volatile and excessive, resulting in reduced lending and economic growth.”

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