Fed finalizes stress-test changes to cut capital volatility

The Federal Reserve Board finalized two rule changes on Wednesday, September 30, 2026, saying they are meant to make its stress test more transparent and public-facing while reducing swings in stress test-related capital requirements. It also asked for comment on a proposal to better reflect differences in banks' business models for generating fee income.

For traders and newer investors who follow bank regulation, the main point is that the Board is changing how it runs and uses the stress test, which it says is designed to make sure large banks stay sufficiently capitalized and able to lend through a severe recession. The Board said the final rules are largely similar to the proposals it put forward in 2025.

One final rule requires the Board to invite public input every year on stress test scenarios and any material model changes. It also updates the framework used to design the hypothetical scenarios, adopts the models that will be used for the 2027 stress test, and adjusts the stress test calendar.

The same rule also changes the global market shock component, which applies shocks to specific market components for banks with large trading books. Those banks will now face two global market shock components each year, and the Board said it will use the shock that produces the largest losses for each firm when calculating stress test results.

A second final rule changes how the stress capital buffer requirement is calculated. For firms subject to the stress test in both years, the Board will average the results from the two most recent annual supervisory stress tests, and it said it will begin doing that in 2028 so that only models incorporating public input are used in the calculation.

The Board also requested public comment on a revision to its noninterest income model. It said the change would improve the stress test's ability to capture business model diversity across firms, and if adopted it would replace the current model that projects each bank's fee income under stress. Comments are due 60 days after publication in the Federal Register.

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

The Board said the changes are likely to reduce year-over-year volatility in capital requirements by approximately 50 percent and are not expected to materially affect aggregate capital requirements.