12:56 PM EST, 12/24/2024 (MT Newswires) -- Certain US bank and business groups said Tuesday that they filed a lawsuit against the Federal Reserve over what they termed as a "flawed" stress-testing framework.

The lawsuit was filed by the Bank Policy Institute, the American Bankers Association, the US Chamber of Commerce, the Ohio Bankers League, and the Ohio Chamber of Commerce. The Bank Policy Institute represents major banks such as JPMorgan Chase ( JPM ) , Citigroup ( C ) and Goldman Sachs (GS).

"While stress testing is an important risk management tool for banks and supervisors that helps ensure that banks have sufficient capital to withstand severe economic shock, the lawsuit seeks to resolve longstanding legal violations by subjecting the stress test process to public input as required by federal law," the plaintiffs said in a statement. "Without the legally required transparency that applies to other federal regulations, the stress tests amount to an illegal intervention into the cost of capital, with detrimental results for the economy."

The lawsuit alleged, among other things, that the lack of transparency in stress test results, along with volatility, makes it tough for banks to manage capital effectively, raising borrowing costs for customers.

The Fed declined MT Newswires' request for comment on the matter.

On Monday, the Fed said it intends to take "immediate" measures to reduce volatility of 2025 stress test results and improve transparency. It plans to start a public comment process on its proposed changes during early next year. The proposed changes don't aim to "materially affect" banks' overall capital requirements, the Fed said in a statement at the time.

The Bank Policy Institute and its co-plaintiffs said Tuesday that their lawsuit preserves "legal options" going forward.

"We appreciate the (Fed's) announcement as a first step towards transparency and accountability, but believe it is necessary to file this suit to preserve our legal rights," Bank Policy Institute Chief Executive Greg Baer said.

Michael Adelman, CEO of the Ohio Bankers League, said that "we are advocating for a fairer, more transparent framework," while Tom Quaadman, senior vice president of economic policy for the US Chamber of Commerce said the current stress test regime "restricts business financing."

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