September 30, 2026
For release at 9:00 a.m. EDT
WASHINGTON — The Federal Reserve Board on Wednesday finalized a sweeping set of changes designed to enhance the transparency and public accountability of its annual bank stress tests while significantly reducing the year-over-year volatility in stress test-related capital requirements. The two final rules, which largely mirror the proposed rules originally introduced in 2025, mark a notable evolution in how the central bank evaluates the resilience of the nation’s largest financial institutions. Alongside these final regulations, the Board also issued a request for public comment on a targeted proposal aimed at better capturing the unique differences in how banks generate fee income across diverse business models.
The Federal Reserve conducts its rigorous annual stress tests to ensure that large, complex banking organizations remain sufficiently capitalized and capable of maintaining the flow of credit to households and businesses, even under the duress of a severe economic downturn. These evaluations have served as a cornerstone of the post-crisis regulatory framework, designed to prevent systemic failures and protect the broader financial system. Building on this mission, the Board announced in December 2024 that it would pursue structural modifications to the test to further improve its overall resilience and operational clarity.
"The stress test is an essential component of our regulatory capital framework," said Vice Chair for Supervision Michelle W. Bowman in a statement accompanying the release. "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."
The first final rule introduces significant procedural reforms by requiring the Board to invite public input on an annual basis concerning the hypothetical stress test scenarios and any material changes to the underlying models. By opening this process to external scrutiny, the central bank aims to foster greater collaboration and understanding between regulators, the banking industry, and the public. Furthermore, the rule updates the overarching framework that guides the design of these hypothetical downturn scenarios and formally adopts the specific models that will be utilized for the 2027 stress test cycle.
In addition to public consultation measures, the first final rule implements several adjustments to the operational stress test calendar. Crucially, it updates the global market shock component, which applies a severe set of hypothetical shocks to specific market components for institutions with large and active trading books. Under the updated framework, these trading-heavy banks will now be tested against two distinct global market shock components each year. The Board will then apply the specific shock that produces the largest losses for each individual firm when calculating its official stress test results, ensuring a more stringent and comprehensive evaluation of market risk.
The second final rule addresses the mechanics of capital planning by requiring the Board, when calculating stress capital buffer requirements, to average the results from the two most recent annual supervisory stress tests for firms that are subject to the test in both years. To ensure a smooth transition and allow adequate time for operational adjustments, the Board will begin averaging these stress capital buffer requirements starting in 2028. This implementation timeline ensures that only models incorporating robust public input will be utilized in the calculation, aligning the buffering mechanism with the newly established transparency standards.
Complementing these final rules, the new proposal requests public comment on a planned revision to the Board’s noninterest income model. This proposed adjustment is designed to improve the stress test’s capability to capture the wide diversity of business models found across different financial institutions. If ultimately adopted, these modifications would replace the current noninterest income model that currently projects each bank’s fee income under severe stress conditions. Interested stakeholders and members of the public will have an opportunity to weigh in, as comments on the proposal are due 60 days after its formal publication in the Federal Register.
Financial analysts and regulatory experts note that the collective impact of these reforms will be substantial. Together, the changes are projected to reduce year-over-year volatility in regulatory capital requirements by approximately 50 percent. Despite this considerable smoothing effect, the adjustments are not expected to materially alter aggregate capital requirements across the banking sector as a whole, striking a balance between regulatory predictability and systemic safety.
For media inquiries regarding the final rules and related proposals, please contact the Federal Reserve Board via email at [email protected] or reach out by telephone at 202-452-2955.
