September 30, 2026
WASHINGTON — The Federal Reserve Board on Wednesday announced the finalization of a comprehensive set of regulatory changes designed to significantly enhance the transparency and public accountability of its annual bank stress tests. The sweeping updates are also intended to curb the sharp year-over-year volatility historically observed in stress test-related capital requirements for the nation’s largest financial institutions.
The two final rules, released Wednesday morning, closely mirror the preliminary proposals that the central bank first introduced for public review in 2025. Alongside these finalized regulations, the Board also issued a fresh request for public comment on an additional proposal aimed at better capturing the distinct differences in how individual banks’ business models generate fee income during periods of economic distress.
The Federal Reserve conducts rigorous annual stress tests to ensure that large, complex banking organizations maintain sufficient capital reserves to absorb unexpected losses and continue lending to ordinary households and commercial businesses even during the course of a severe and prolonged economic recession. The momentum behind the latest round of modernizations builds upon structural adjustments announced by the central bank in December 2024, which were originally initiated to improve the overarching resilience of the nation’s banking regulatory framework.
"The stress test is an essential component of our regulatory capital framework," said Vice Chair for Supervision Michelle W. Bowman, emphasizing the critical role the program plays in maintaining the stability of the broader financial system. "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."
According to structural analyses conducted by the central bank, the implementation of these combined regulatory changes is projected to successfully reduce year-over-year volatility in bank capital requirements by approximately 50 percent. Despite this dramatic reduction in regulatory unpredictability, the Federal Reserve noted that the new rules are not expected to materially alter the aggregate level of capital required across the banking sector as a whole.
The first of the two final rules introduces a formal requirement for the Board to invite public input on an annual basis regarding the specific macroeconomic stress test scenarios and any material changes contemplated for the underlying risk models. This structured participatory framework updates the guiding criteria used in the design of hypothetical economic scenarios and formally adopts the specific models that will govern the execution of the upcoming 2027 stress test cycle.
Furthermore, this rule makes several administrative and operational adjustments to the annual stress test calendar, providing supervised institutions with greater operational predictability. It also updates the global market shock component—a complex set of severe, instantaneous shocks applied to specific asset classes and market components for banking organizations that maintain exceptionally large trading books. Under the newly finalized provisions, these trading-heavy institutions will be evaluated annually against two distinct global market shock components. Going forward, the Board will utilize whichever individual shock produces the largest losses for each specific firm when calculating its official stress test results.
The second final rule directly addresses the calculation methodology for stress capital buffer requirements. It mandates that the Board calculate these buffers by averaging the specific outcomes derived from the two most recent annual supervisory stress tests for firms that were legally subject to the testing mandate in both corresponding years. To ensure a smooth transition and guarantee that only models incorporating robust public input are utilized in the final mathematics, the Board has announced that it will officially begin averaging these stress capital buffer requirements starting in the year 2028.
In addition to finalizing these two major rules, the Board issued a new proposal seeking formal public feedback on a targeted revision to its noninterest income model. This proposed adjustment is designed to significantly improve the stress test framework’s analytical capability to accurately capture diverse business models and fee-generating strategies across different banking institutions. If ultimately adopted following the public comment period, these modifications would completely replace the existing noninterest income model that currently projects each individual bank’s incoming fee revenue under acute economic stress. Interested parties and stakeholders will have 60 days following the official publication of the proposal in the Federal Register to submit their formal comments to the Board.
Media inquiries regarding the finalized rules, the accompanying proposals, or the broader stress test framework should be directed to the Federal Reserve Board’s media relations office via email at [email protected] or by telephone at 202-452-2955.
