Major banking associations, including the Bank Policy Institute (BPI) and the American Bankers Association (ABA), have filed a lawsuit against the Federal Reserve in the U.S. District Court for the Southern District of Ohio in Columbus, Bloomberg reports. The plaintiffs argue that the criteria used by the Fed for stress tests are developed under conditions of extreme secrecy, leading to “volatile and unjustified capital requirements and constraints.”

The lawsuit seeks to declare unlawful the models and scenarios used in the Fed’s 2024 stress tests, as well as those planned for 2025 and 2026. The banking groups insist that the Fed should provide an opportunity for public comments on the models before final approval. They argue that the lack of transparency in the stress tests not only makes it difficult for banks to predict capital requirements but also impacts the cost of financial services for consumers.

Annual stress tests for U.S. banks were introduced following the 2008 financial crisis to assess financial institutions’ resilience under hypothetical recession scenarios. However, the banking industry has long expressed dissatisfaction over the variability in capital requirements and the Fed’s lack of transparency. According to Bloomberg, the Federal Reserve plans to initiate a public comment process on potential changes to stress-test scenarios in early 2025.

The Bank Policy Institute (BPI) and the American Bankers Association (ABA) are key industry groups representing the U.S. banking sector. BPI includes 42 of the largest banks, such as JPMorgan Chase, Bank of America (NYSE: BAC), Citibank, and others. These institutions provide nearly half of all small-business lending in the U.S. and employ approximately two million people. The ABA represents banks of all sizes, offering education, research resources, certification, and national advocacy.