September 30, 2026

Federal Reserve Board Finalizes Changes to Enhance Transparency and Public Accountability of Stress Tests and Reduce Volatility in Capital Requirements

WASHINGTON — The Federal Reserve Board on Wednesday finalized a comprehensive package of changes designed to significantly enhance the transparency and public accountability of its annual bank stress tests while simultaneously reducing year-over-year volatility in stress test-related capital requirements.

The two final rules, released at 9:00 a.m. EDT, largely mirror the proposed rules originally introduced in 2025 following a series of regulatory reviews. Alongside the finalized changes, the Board also issued a new request for public comment on a proposal aimed at better capturing the unique differences in how various banking institutions generate fee income through their distinct business models.

The Federal Reserve conducts rigorous annual stress tests to ensure that the nation’s largest and most complex banking institutions remain sufficiently capitalized and fully capable of continuing to extend credit to households and businesses, even during times of severe economic recession or profound financial market disruption. The latest overhaul builds upon modifications originally announced in December 2024, which were designed to continually improve the resilience of the financial sector.

"The stress test is an essential component of our regulatory capital framework," said Vice Chair for Supervision Michelle W. Bowman, emphasizing the importance of the update. "Today’s changes preserve its resilience by ensuring that it is transparent, granular, and risk-sensitive. The public will now have greater assurance that the risks banks take will be reflected appropriately in their stress test losses and their capital requirements."

Overhauling the Stress Test Framework and Calendar

The first of the two final rules institutes a formal requirement obligating the Board to invite public input annually regarding the stress test scenarios and any material changes made to underlying economic and financial models. This structural shift ensures that market participants, academics, and the public have a consistent voice in shaping the hypothetical macroeconomic scenarios that test the structural integrity of the banking system.

Furthermore, this rule updates the foundational framework that guides the design of these hypothetical stress scenarios and formally adopts the specific models that will be utilized for the upcoming 2027 stress test cycle. In an effort to streamline the regulatory process, the final rule also introduces several key adjustments to the annual stress test calendar.

A particularly noteworthy component of the first final rule involves updates to the global market shock framework. This mechanism applies a severe set of hypothetical shocks to specific market components for banking institutions that maintain large trading books. Under the revised guidelines, these affected firms will now be tested against two distinct global market shock components each year. To determine the final stress test results, the Board will utilize whichever of the two shocks produces the largest individual losses for each specific firm, ensuring a rigorous evaluation of trading book vulnerabilities.

Averaging Results to Stabilize Capital Buffers

The second final rule addresses the stability of regulatory capital requirements by changing how the Stress Capital Buffer (SCB) is calculated. Specifically, the rule requires the Board to average the results from the two most recent annual supervisory stress tests for firms that are subject to the stress testing requirements in both consecutive years.

To ensure a smooth transition and guarantee that only models incorporating direct public input are utilized in the calculation, the Board will officially begin averaging these stress capital buffer requirements starting in 2028. Regulators anticipate that this averaging mechanism, combined with the other procedural updates, will successfully reduce year-over-year volatility in capital requirements by approximately 50 percent. Crucially, these adjustments are not expected to materially affect aggregate capital requirements across the banking sector as a whole.

New Proposal on Noninterest Income Models

In addition to finalizing the two primary rules, the Board issued a related proposal focusing on the methodology used to project noninterest income during periods of financial stress. The proposal requests public comment on a targeted revision to the Board’s noninterest income model, which is designed to improve the stress test’s ability to accurately capture business model diversity across different banking firms.

If ultimately adopted, these proposed adjustments would replace the current noninterest income model, which is responsible for projecting each individual bank’s fee income under severe economic stress. The Board has indicated that public comments on this specific proposal will be accepted for 60 days following its official publication in the Federal Register.

Together, these sweeping regulatory modifications represent a concerted effort by the central bank to modernize the post-crisis supervisory framework, balancing robust risk oversight with greater predictability for the banking sector.

For media inquiries regarding the final rules and related proposals, please contact the Federal Reserve Board via email at [email protected] or by telephone at 202-452-2955.