Bank Policy Institute, which represents the major banks. JP Morgan, Citigroup And Goldman Sachsis joining the American Bankers Association, the Ohio Bankers League, the Ohio Chamber of Commerce and the U.S. Chamber of Commerce in filing the lawsuit, which it says “requires the stress test process to be made public in Resolving long-standing legal violations by conditioning Pitt.”
The groups said they do not oppose stress testing, but that the current process is short-sighted and “creates vague and unclear requirements and restrictions on bank capital.”
CNBC previously reported plans to file a lawsuit.
A feed stress test is one. An annual ritual which forces banks to maintain adequate cushions for bad loans and dictates the size of share buybacks and dividends.
After the market closed on Monday, the Federal Reserve announced in a statement that it is Looking to make changes. to the bank’s stress tests and will seek public comment on what it calls “significant changes to improve the transparency of its bank stress tests and reduce the resulting volatility of capital buffer requirements.” ”
The Fed said it decided to change the tests because of the “evolving legal landscape,” pointing to changes in administrative rules in recent years. It did not outline any specific modifications to the annual stress test framework.
While the big banks will likely see the changes as a win, it may be too late.
Also, the changes may not be large enough to address concerns about banks’ heavy capital requirements. “These proposed changes are not designed to materially affect overall capital requirements,” according to the Fed.
“The board’s announcement today is a first step toward transparency and accountability,” BPI CEO Greg Baer said in a statement, welcoming the Fed’s announcement.
However, Baer also hinted at further action, saying, “We are reviewing this closely and considering additional options to ensure timely reforms that are 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 is vague, and results in excessive capital rules that limit bank lending and Harm economic development.
In July, the groups accused the Fed of violating the Administrative Procedure Act, because it did not seek public comment on its stress scenarios and kept supervisory models secret.
Read details of the complaint here.
– CNBC’s Hugh Sun contributed to this report.