On December 25, financial news reported (edited by Shi Zhengcheng) that just as the Federal Reserve publicly acknowledged its shortcomings and announced major policy changes for the banking industry's stress testing, it received a lawsuit from Wall Street.

On Tuesday, local time, the Bank Policy Institute (BPI) officially sued the Federal Reserve, accusing it of using opaque processes in its annual stress tests to assess the resilience of banks.

The lawsuit states: "Due to the lack of transparency from the Federal Reserve Board, the banking industry is facing significant and unpredictable fluctuations in capital requirements."

The Bank Policy Institute is an industry organization whose members include JPMorgan, Bank of America, Goldman Sachs, Morgan Stanley, Citibank, Wells Fargo & Co, the Swiss Bank Group and other large banks. The American Bankers Association and the US Chamber of Commerce are also members of this organization. The chair of the board of the Bank Policy Institute is none other than Jamie Dimon, the CEO of JPMorgan, known as the 'king of Wall Street.'

The board of the Bank Policy Institute gathers prominent figures from Wall Street (source: official website).

The latest chapter of Wall Street's battle against the Federal Reserve.

This lawsuit also marks a substantial escalation of Wall Street's confrontation with the Federal Reserve's banking industry regulation. The timing, just as Trump is about to take office, seems unlikely to be a coincidence.

As early as 2023, in response to the Federal Reserve's proposal to implement new capital rules (the final version of the Basel III Agreement), Wall Street quickly banded together to initiate a fierce protest against the Federal Reserve, threatening to file a lawsuit. Faced with Wall Street's fierce offensive, the Federal Reserve backed down this fall, announcing plans to significantly reduce the proposed capital increase requirements.

However, it is clear that this struggle is far from over. Wall Street is now targeting the Federal Reserve's annual stress tests with a fierce attack.

Stress tests are designed to measure how the banking industry performs under adverse conditions. If the test results are poor, the Federal Reserve will require banks to increase capital and impose restrictions on dividend distributions and buybacks. In a recent annual test, the conditions examined how banks would respond to a 40% decline in commercial property prices and a 36% decline in residential prices.

In the lawsuit, the banks stated that they do not wish to eliminate stress tests but demand greater transparency from the Federal Reserve regarding these tests. The lawsuit stated: 'Stress tests may impose billions of dollars in unexpected capital burdens on individual banks without obvious reason, which could negatively impact the overall economy.'

David Solomon, CEO of Goldman Sachs, earlier this year accused that the process is very opaque, and the volatility of the results makes 'prudent capital management for us and all our peers difficult.'

Afraid of the lawsuit preparations, the Federal Reserve issued an announcement after the market close on Monday, stating it is preparing to seek public comments on significant changes to the stress tests, aiming to increase transparency and reduce the volatility of the results.

(Source: Federal Reserve)

Greg Bell, CEO of Bank of America Policy, stated: 'We appreciate the Federal Reserve's announcement; this is the first step toward transparency and accountability, but it is still necessary to file this lawsuit to protect our legal rights.'

Of course, the Banks in the USA are also concerned that the Federal Reserve's announcement did not mention any substantial changes to capital requirements, failing to meet their demands for reduced burdensome banking regulations.

According to previous reports, the Trump transition team is exploring ways to reduce, merge, or even eliminate Wall Street banking regulatory agencies. Similar to Powell, the Federal Reserve's Vice Chairman for Oversight, Michael Barr, will also complete his term in 2026, and Trump will be responsible for nominating his successor.

While both sides are competing against each other, some groups in the USA believe that once the Federal Reserve publicly discloses the models for stress testing, it will turn the stress tests into a process that can be easily manipulated.

Denny's Keller, chairman of the economic think tank Better Markets, believes that the Federal Reserve has almost clearly indicated its intention to hand over the 'keys' to stress testing to Wall Street banks. This will make the tests largely predictable and very easy to control, benefiting the banks significantly.