Federal Reserve Sued Over Lack of Transparency in Bank Stress Testing

Banking and business groups allege the Fed's stress test framework violates federal law and hinders economic growth.

The Bank Policy Institute, American Bankers Association, and other groups filed a lawsuit against the Federal Reserve, claiming its stress testing process is opaque and violates the Administrative Procedure Act.
Stress testing, introduced after the 2008 financial crisis, assesses whether banks have sufficient capital to withstand severe economic shocks, but critics argue the process lacks transparency and consistency.
The lawsuit contends that the Fed's annual adjustments to capital requirements occur without public notice or input, leading to unpredictable and excessive capital charges that restrict lending and economic growth.
The Federal Reserve announced it will consider changes to its stress testing practices in early 2025, including increasing transparency by disclosing supervisory models and allowing public commentary on scenarios.
Legal experts highlight recent Supreme Court rulings that strengthen challenges to opaque regulatory processes, with the plaintiffs aiming for reforms to take effect by 2026.