Stress test litigation
Bank Policy Institute v. Board of Governors of the Federal Reserve System
Date: May 23, 2025
Issue: On May 23, 2025, ABA and its co-plaintiffs filed a joint motion with the Board of Governors of the Federal Reserve System to stay proceedings in ABA’s lawsuit claiming the Federal Reserve’s stress testing framework violates the Administrative Procedure Act (APA).
Case Summary: ABA and its co-plaintiffs filed a joint motion with the Fed to stay proceedings in their lawsuit claiming the Fed’s stress testing framework violates the APA.
The Fed conducts stress tests using hypothetical economic scenarios and internal models to gauge how banks would perform under stress. The results determine each bank’s “stress capital buffer,” a capital requirement tied to its test performance. Banks must meet this buffer, along with other minimum capital standards, or face restrictions on dividend and bonus payouts.
In December, ABA sued the Fed in the Southern District of Ohio, arguing its stress test regime violates the APA. The Fed had announced plans to open scenario designs to notice and comment rulemaking. In the complaint, ABA explained the Fed’s changes may address “some if not all” of its concerns over the stress testing process. In any event, ABA filed suit to preserve its legal rights given that the statute of limitations was expiring.
On March 21, 2025, ABA moved for summary judgment, requesting that the court prohibit the continued use of the current stress-test framework after the 2025 cycle unless it complies with the APA. ABA argued the models and scenarios are legislative rules that must go through notice and comment; the Fed’s secrecy violates the Freedom of Information Act and the Constitution’s Due Process Clause by depriving banks of fair notice; and the Fed’s 2019 and 2020 rulemakings were arbitrary and capricious. In response, on April 29, 2025, the Fed filed a combined cross-motion for summary judgment and opposition to ABA’s motion.
However, on May 23, 2025, ABA and the Fed jointly requested a stay of proceedings. The parties informed the court that the Fed was revising its stress testing framework and may request a pause in litigation if the revision could help resolve the case. On April 17, 2025, the Fed issued its first Notice of Proposed Rulemaking (NPRM) to begin revising the framework. The Fed expects to release another NPRM by Sept. 30, 2025, seeking public comment on the proposed stress-test models and scenarios for 2026. This NPRM will also propose requiring public comment on any future material changes to the stress-test models and will outline a revised scenario design framework. Given the progress made and the Fed’s plans for continued rulemaking, both parties believe their resources are better directed toward the regulatory process rather than ongoing litigation.
Bottom Line: The parties jointly request to stay proceedings until Aug. 1, 2025. If, after conferring, they do not jointly seek to extend the stay beyond that date, they agree that summary judgment briefing will resume.
Document: Motion
