A group of America’s largest banking giants are considering whether to take a shocking step: file a lawsuit against the U.S. Federal Reserve.
JPMorgan Chase, Citibank and Goldman Sachs are among the list of major banks that, with the help of their trade group, have hired one of the country’s top conservative litigators to draft the lawsuit, Semafor reports.
Eugene Scalia, son of former Supreme Court Justice Antonin Scalia, is leading the legal effort, which would aim to eliminate proposed rules that would force banks to increase the amount of cash they have available.
“[Scalia] is quietly preparing a lawsuit to block the proposed rules on behalf of the Bank Policy Institute, a trade group representing JPMorgan, Citibank, Goldman Sachs and others, people familiar with the matter say.
It would be the first time in recent history that the industry has taken the Fed to court, and a departure from standard efforts to antagonize the top regulator.
The Fed wants banks to keep an additional 20% of cash on their balance sheets. The move is aimed at ensuring they have enough capital to deal with liquidity concerns and avoid the kind of bank runs that plagued the banking sector a year ago.
But the banks say the rules are far too strict, citing an internal analysis that shows they would effectively be forced to keep 30% cash on hand.
Scalia says the Fed has a lot of explaining to do.
“As a legal process, it’s not going to be enough to say that a bunch of regulators got together in Switzerland, and this rule is what they took off the mountain.
Agencies need to do their own work and explain why these new requirements are appropriately aligned, and why their benefits are worth the costs. This proposal does not do that.”
US banks continue to face significant bond losses.
And while banks can simply hold bonds until they mature, they can become an extreme liability when banks need a liquidity injection.
A recent report from the Federal Deposit Insurance Corporation (FDIC) shows that the total number of unrealized securities losses in the banking system is now estimated at $684 billion.
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