Federal Reserve Board finalizes changes to enhance the transparency and public accountability of its stress test and reduce volatility in its stress test-related capital requirements

The Federal Reserve Board finalized two rules to make its annual stress test more transparent and to smooth volatility in stress-test-driven capital requirements. The rules require annual public input on scenarios and model changes, adopt models for the 2027 test, update the global market shock for large trading banks, and mandate averaging of the two most recent tests when setting stress capital buffers beginning in 2028.

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Federal Reserve Board finalizes changes to enhance the transparency and public accountability of its stress test and reduce volatility in its stress test-related capital requirements

Why It Matters

The changes aim to give the public greater visibility into how stress tests and model updates are developed while reducing swings in capital requirements that banks must hold from one year to the next. That could affect how large banks plan capital and risk management without materially changing total capital across the system.

Key Facts

Date announced: September 30, 2026
Number of final rules: Two
Effective change for stress capital buffer: Averaging results from two most recent annual supervisory stress tests
When averaging begins: 2028
Models adopted for: 2027 stress test

The Federal Reserve Board on September 30 finalized two rules intended to increase transparency and public accountability of its supervisory stress tests while reducing volatility in stress-test-related capital requirements. One final rule requires the Board to solicit public input each year on stress test scenarios and on any material changes to the models used in the tests. That rule also updates the guidance for designing hypothetical scenarios, adopts the models that will be used for the 2027 stress test, and adjusts the stress test calendar.

The final rule also changes the Board's global market shock (GMS) approach for banks with sizable trading books. These firms will face two different GMS components each year, and the Board will use whichever shock produces the larger loss when calculating a firm's stress test results. The Board said the change is intended to ensure that market risks are reflected appropriately in stress-test losses and capital requirements.

The second final rule alters how the stress capital buffer (SCB) is calculated. For firms subject to the annual supervisory stress test in two consecutive years, the Board will average the results from the two most recent tests when setting the SCB. The Board plans to start using averaged SCBs in 2028 so that only models that have incorporated public input are part of the calculation.

Separately, the Board requested comment on a proposed revision to its noninterest income model to better capture differences in banks' business models for fee income. If adopted, that revised model would replace the current noninterest income projection. Comments are due 60 days after the proposal is published in the Federal Register. The Board estimated that, together, the finalized changes would cut year-over-year volatility in capital requirements by about 50% and would not materially change aggregate capital requirements.