A panoramic view of the Federal Reserve Board Building in Washington, USA.
Samuel Corum | Anadolu Agency | Getty Images
Big banks plan to sue the Federal Reserve over the annual bank stress test, people familiar with the matter said. The lawsuit is expected this week and could be filed as early as Tuesday morning, the people said.
The Fed’s stress tests are an annual ritual that forces banks to maintain adequate cushions against bad loans and determines the size of stock buybacks and dividends.
After markets closed on Monday, the Fed said in a statement that it was considering changes to bank stress tests that would “improve the transparency of bank stress tests and reduce the resulting volatility in capital buffer requirements.”
The Fed cited changes in administrative law in recent years and said it decided to change the test due to the “evolving legal landscape.” No specific changes to the annual stress testing framework were outlined.
Big banks will see this change as a victory, but it may be too late.
The changes may also not be enough to satisfy banks’ concerns about onerous capital requirements. “According to the Fed, these proposed changes are not intended to have a material impact on overall capital requirements.”
Greg Baer, ​​CEO of BPI (Bank Policy Institute), which represents major banks such as JP Morgan, citygroup and goldman sachswelcomed the Fed’s announcement and said in a statement, “Today’s Board announcement is a first step toward transparency and accountability.”
But Baer also hinted at further action: “We are looking at this closely and considering additional options to ensure timely reforms that are both good law and good policy.” did.
Groups such as BPI and the American Bankers Association have criticized stress testing processes in the past, arguing that they are opaque and that, as a result, increased capital requirements are hurting bank lending and economic growth. have expressed concerns about it.
In July, the group accused the Fed of violating the Administrative Procedure Act by not seeking public comment on stress scenarios and keeping its supervisory model secret.
CNBC’s Hugh Son contributed to this report.
