Fed finalizes stress test rules with public input and averaged buffers
Victoria Shinder1 min readThe Federal Reserve Board finalized two rules on 30 September to make its bank stress test more transparent and to reduce volatility in the capital requirements that follow from it. Both are largely similar to the proposals published in 2025.
The first rule requires the Board to invite public comment every year on the stress test scenarios and on any material model changes. It updates the framework used to design the hypothetical scenarios, adopts the models for the 2027 test and adjusts the test calendar. It also changes the global market shock applied to banks with large trading books: they will now face two market shock components each year, and the Board will use whichever produces the larger losses for each firm.
The second rule changes how the stress capital buffer is set. The Board will average the results of the two most recent annual stress tests for firms tested in both years, which smooths year-to-year swings in each bank's requirement. Averaging begins in 2028, so that only models that have been through public comment are used in the calculation.
Alongside the final rules, the Board proposed replacing its model of banks' noninterest income under stress, to better reflect differences in how firms earn fees. "Today's changes preserve its resilience by ensuring that it is transparent, granular, and risk-sensitive," said Vice Chair for Supervision Michelle Bowman.
Why it matters
Stress test results set how much capital the largest US banks must hold, and single-year swings have forced them to hold buffers against the noise of one scenario. Averaging and public input make the requirement more predictable; the dual market shock makes it harsher for trading-heavy banks. The net effect on capital will show only in the 2027 and 2028 results.