The Federal Reserve finalized changes to stress tests for large banks, including annual public comment on scenarios and material model changes. Starting in 2028, capital buffers for eligible firms will use the average of two annual test results. The Fed expects the package to reduce yearly swings in capital requirements. The rules change how banks’ resilience under a severe economic downturn is measured.
The US Federal Reserve finalized two rules on September 30 governing stress tests for large banks. The tests assess whether banks could retain enough capital to keep lending under a hypothetical severe recession. The new rules change both how scenarios are designed and how results feed into required capital buffers. The Fed says its aim is to make the process more transparent and reduce year-to-year swings in banks’ capital requirements.[1], [2]
Under the first rule, the Fed will seek public input each year on stress scenarios and material changes to its models. It also adopted models for the 2027 test and adjusted the testing calendar. Banks with large trading portfolios will face two global-market shocks, with the loss-producing shock used in the result. That does not mean the bank can select the more favorable scenario. Both shocks are tested, and the one generating the larger loss determines this part of the outcome.[1]
The second rule uses the average of the two most recent supervisory tests to calculate stress capital buffers for banks tested in both years. The Fed says averaging starts in 2028 and expects the package to cut annual volatility in capital requirements by about half. That is a projection, not an observed result. Separately, it requested comment on a proposal to better model banks’ fee income under stress. That proposal remains distinct from the two finalized rules.[1]
