Because of the “stress test”… American banks are suing the Federal Reserve

A coalition of American commercial institutions led by major banks on Tuesday filed a lawsuit against the Federal Reserve over annual tests it conducts to verify their ability to confront economic risks, considering that they harm growth.
These evaluations are known as the “stress test”, which is an annual procedure carried out to verify that banks have sufficient capital reserves to confront economic shocks, especially bad loans, and dictates the size of share repurchases and the distribution of dividends.

Pressure testing concerns

The institutions said, “For years, we have raised serious concerns about the stress testing framework and the need to reform it,” according to what the Banking Policy Institute reported.
The institute represents banking sector giants, major regional lenders, and international banks operating in the United States. He is leading a coalition in the lawsuit that includes the U.S. Chamber of Commerce, the Ohio Bankers Association, and the Ohio Bankers Association.

Global financial crisis

These parties criticize the Federal Reserve’s resort to “stress tests” as part of the reforms it adopted following the 2008 global financial crisis. Major banks have long argued that capital requirements in the post-2008 era are exaggerated and harmful to commercial institutions in need of loans.
She considered that “the current ambiguous system, in addition to the absence of clear standards regarding (what is) the global market shock and the cost of operational risks, continues to produce inaccurate, fluctuating and exaggerated capital fees, which leads to a reduction in lending and economic growth.”

Bank capital

The Federal Reserve did not immediately respond to a request for comment.
The reserve announced on Monday that it would soon ask to hear opinions on “major changes to improve the transparency” of the tests and reduce the volatility of the required capital reserves, noting that since the tests were adopted 15 years ago, the capital of major banks has more than doubled, that is, more than a trillion dollars.
The Federal Reserve confirmed that its Board of Directors “will continue its exploratory analysis, which assesses additional risks to the banking sector in isolation from stress testing.”
While the Banking Policy Institute welcomed the Federal Reserve’s statement on Monday and considered it “a first step in the direction of transparency and accountability,” it stressed that “it is necessary to file this lawsuit to preserve our legal rights.”