The banking trade groups suing the Federal Reserve over its stress testing practices would like the lawsuit wrapped up in time to apply the corresponding changes to the next exam cycle.
In a motion filed late last week, the Bank Policy Institute, American Bankers Association and Ohio Bankers League requested a summary judgment for their case against the Fed, meaning the case would be decided based solely on the facts of the case, rather than trial arguments.
Still, the bank trades said they would like to make an oral argument to "assist the court in its decisionmaking process."
In their request, the groups urged the court to render its decision by Oct. 31 to ensure the Fed has time to implement the "necessary reforms" to its methods ahead of the 2026 test. A ruling by that date would give the Fed a three-month buffer before their next scheduled
They also noted that a speedy ruling would give the losing side an opportunity to appeal.
The banking groups, along with the Ohio and U.S. chambers of commerce,
In their latest filing, the plaintiffs note that because the stress test results in new capital requirements on banks each year, changes made to the Fed's practices in 2019, 2020 and 2023 all fell short of the disclosure requirements called for by the APA. They argue that any one of these missteps by the Fed should be enough for the court to find the Fed's stress testing practices unlawful.
Every year the Fed puts the largest banks in the country through a set of adverse scenarios to see how their balance sheets would perform under stress. The projected losses each bank experiences are used to establish their stress capital buffer — an additional capital requirement imposed on large banks to provide an extra layer of protection in the case of severe economic shocks.
In their filing, the banking groups reiterated their support for both stress testing and stress-related capital, but argued that the current methods are overly restrictive and limit their abilities to provide credit to the economy.
In the past, the Fed has resisted sharing its models with banks, arguing that it would enable them to effectively game the test. But in recent months the central bank has signalled a new thinking on the matter.
One day before the banks' filed suit, the Fed announced its intention to
During an appearance on Capitol Hill earlier this year, Fed Chair Jerome Powell pledged to release the models ahead of each year's stress test and make an effort to improve the overall transparency of the examination process.
"On transparency, we're going to release the models, clean them up and publish the models, put them out for comments," Powell said. "We're also going to release the stress test scenarios before we implement them."
In their filing, the banking groups noted these commitments but said the words were not enough, noting that the Fed has not changed its practices for the current testing cycle.
"Despite this acknowledgement that the current stress-testing regime is legally untenable, the Board thus far has failed to subject either the models or scenarios to notice and comment," the filing reads. "Instead, the Board is currently using the existing framework to develop stress-capital requirements in the 2025 stress tests, which are already underway, and has published no proposed changes for the 2026 stress tests, which will kick off early next year."
