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Federal Reserve Joins Banking Industry in Pausing Stress Test Lawsuit

May 23, 2025

Federal Reserve Joins Banking Industry in Pausing Stress Test Lawsuit

The Federal Reserve joins with the banking industry to pause the ongoing lawsuit regarding the large bank stress tests, agreeing to disclose the stress test models and seek comment on both the scenarios and future model changes. Stress tests are critical to the oversight of the largest, systemically important banks. Although the decision to make stress tests more transparent sounds like a good thing, it is actually making them weaker, less informative, and more susceptible to gaming. When the models and scenarios are published, they become less robust. Consequently, the test results will give a false sense of security and allow for capital ejection to shareholders and bank executives, which leaves less protection to be used in a crisis and more liability for taxpayers.

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