Wall Street banks are dissatisfied with capital requirements and are suing the Federal Reserve for allegedly illegal stress testing.

Banks and business groups are suing the Federal Reserve over its annual stress tests, claiming they want the Fed to increase transparency in how it uses these rules and adoption factors. Groups including the Bank Policy Institute and the American Bankers Association believe that the Fed's stress test standards are secretly designed, making "inconsistent, inexplicable demands and restrictions" on bank capital. According to a federal lawsuit filed on Tuesday in Columbus, Ohio, this has affected the costs of American Financial Group, Inc. The lawsuit seeks to declare the models and scenarios used in the 2024 stress test as illegal, as well as those in 2025 and 2026. These organizations also hope that the Fed will allow public comment on these models before implementing them. In the complaint, these groups wrote that the Federal Reserve Board's "lack of transparency has resulted in significant and unpredictable fluctuations in bank capital requirements. This in turn weakens the ability of banks to allocate capital effectively, including the ability to lend to small and other businesses, which are key engines of job creation in the U.S. economy." These groups representing companies such as JPMorgan, Goldman Sachs Group, Inc., and Bank of America Corp, acknowledge that the Fed has announced intentions to change the program, but they say the deadline to appeal some of these processes is next February. Earlier, the People's Bank of China announced on Monday that it would comprehensively reform the tests to eliminate some fluctuations in capital requirement levels annually. The annual bank health check implemented after the financial crisis aims to assess the performance of banks during periods of assumed economic recession. According to a revision plan proposed by the Fed, results will be averaged over two years, regulatory agencies will seek public opinion on scenario assumptions each year, and then make a final decision. The Fed said on Monday that it intends to start the public comment process on possible changes early next year. The Fed is facing an evolving legal environment and changes in the administrative legal framework, with pressure from the incoming Trump administration and bankers demanding relaxation of regulations on various agencies in the U.S. Earlier this year, the Supreme Court limited the regulatory agency's power to interpret laws. Wall Street executives and industry groups representing them have long criticized various aspects of capital requirements, but these criticisms have intensified since last year when three regulatory agencies including the Fed proposed capital requirements known as Basel III. Jamie Dimon, who has long served as CEO of JPMorgan, called in this year's annual letter to shareholders for a "detailed review of the bank regulatory process and possibly a thorough reform," adding, "I know this may be wishful thinking." He has repeatedly stated that annual stress tests may create a false sense of security. Dimon said at a meeting in May this year that the current system is "a layering of red tape." In the lawsuit filed on Tuesday, these organizations stated that the procedures surrounding the Basel proposals last year showed the value of "public notice and comment." The lawsuit states that the final stage proposals of Basel III "were subject to strong criticism," with Fed officials vowing "significant changes to the parameters of these rules in the final rule." These organizations wrote that, in contrast, "due to the board's secret adoption and modification of stress capital buffer standards, the public and the board have been deprived of the benefits of notice and comment." In August of this year, after Goldman Sachs Group, Inc. requested a modification to stress capital buffer requirements following this year's stress test, the Fed lowered the company's stress capital buffer requirement. This is the first time since the introduction of stress capital buffer requirements that a regulatory agency has approved such a request from a bank.