A group of banks and business groups are suing the Federal Reserve over its annual bank stress tests.
The Bank Policy Institute, which represents major banks JPMorgan, Citi Group And Goldman Sachsjoins the American Bankers Association, the Ohio Bankers League, the Ohio Chamber of Commerce and the US Chamber of Commerce in filing the lawsuit, which they say aims to “resolve long-standing legal violations through the stress testing process when appropriate subject to public input by federal law.”
The groups said they are not against stress testing, but that the current process is flawed and “produces shaky and unexplained requirements and restrictions on bank capital.”
CNBC previously reported on the plans to file a lawsuit.
The Fed’s stress test is an annual ritual that forces banks to maintain sufficient buffers for bad loans and determines the size of share buybacks and dividends.
After the market closed on Monday, the Federal Reserve announced in a statement that this is the case looking for changes to the bank stress tests and will seek public comment on what it calls “significant changes to improve the transparency of the bank stress tests and reduce the volatility of the resulting capital buffer requirements.”
The Fed said it made the decision to change the tests because of “the evolving legal landscape,” pointing to changes in administrative laws in recent years. No specific changes were outlined to the annual stress testing framework.
While the big banks will likely view the changes as a victory, it may be too little too late.
Moreover, the changes may not go far enough to address banks’ concerns about onerous capital requirements. “These proposed changes are not intended to materially impact overall capital requirements, according to the Fed.
BPI CEO Greg Baer welcomed the Fed’s announcement, saying in a statement: “The Board of Governors’ announcement today is a first step toward transparency and accountability.”
However, Baer also hinted at further action: “We are looking closely and considering additional options to ensure timely reforms that are both good law and good policy.”
Groups such as the BPI and the American Bankers Association have raised concerns in the past about the stress testing process, saying it is opaque and has resulted in stricter capital rules that hurt bank lending and economic growth.
In July, the groups accused the Fed of violating the Administrative Procedure Act for not seeking public comment on its stress scenarios and keeping supervisory models secret.
Read the details of the complaint here.
CNBC’s Hugh Son contributed to this report.