The news
The Federal Reserve Board finalized two rules on September 30, 2026, that change how its annual stress test works. The Fed stress test rules add yearly public input on scenarios and models and average results across two years, which the Fed says should make large banks' capital requirements far less jumpy.
The first rule requires the Board to invite public comment each year on its hypothetical stress scenarios and on any material changes to its models. It also updates the framework the Fed uses to design scenarios, adopts the models for the 2027 test and adjusts the testing calendar. According to the ABA Banking Journal, the rule sets a January 10 deadline for disclosing proposed scenarios.
The same rule changes the global market shock, the set of sudden market moves applied to banks with large trading books. Those banks will now face two shocks each year, and the Fed will use whichever produces the larger loss when calculating capital.
The second rule changes how the stress capital buffer is set. The buffer is the extra capital a bank must hold on top of minimums, sized by its losses in the Fed's test. Under the final rule, the buffer will be based on an average of results from the two most recent annual tests. The Fed said this starts in 2028, so that only models that went through public comment are used.
The Fed estimated that year-over-year volatility in capital requirements will fall by about 50 percent and said aggregate capital requirements are not expected to change materially. It also proposed revisions to its noninterest income model, the part that projects fee and other non-lending income, to better reflect differences in bank business models, with comments due 60 days after publication in the Federal Register.
Vice Chair for Supervision Michelle Bowman said the changes keep the test transparent, granular and risk-sensitive, giving the public greater assurance that the risks banks take are reflected in their stress losses and capital requirements. Governor Michael Barr disagreed, warning, as reported by the ABA Banking Journal, that the rule will over time reduce the test's rigor and credibility.
The numbers
- Expected drop in year-over-year capital volatility
- About 50%
- Averaging window for stress capital buffer
- 2 most recent annual tests
- Averaging begins
- 2028
- Global market shocks for large trading banks
- 2 per year
- Comment period on income model proposal
- 60 days
Why CEOs should care
For CFOs and treasurers at large banks, the main change is predictability. When a single bad stress result can lift a capital buffer sharply from one year to the next, banks tend to hold extra cushions. Averaging two years should narrow that range, so finance teams can ask how much of the current management buffer above requirements is still needed once averaging starts in 2028.
Boards should note what has not changed: the Fed says total capital requirements should stay roughly the same. The benefit is smoother planning, not a release of capital across the system. Directors weighing buyback or dividend plans should ask management to model buffers under the averaged method rather than assume a lower number.
Fintechs and other bank partners have a stake as well. Steadier capital planning at large banks can make it easier for them to commit balance sheet to lending programs, sponsor-bank arrangements or credit partnerships over several years. Partnership teams can ask bank counterparts whether the new rules change their appetite or time horizons. Banks with big trading desks should also check the dual market shock, since the larger of two losses will now count.
The bigger picture
The changes follow a lawsuit by the American Bankers Association, the Bank Policy Institute, the Ohio Bankers League and other groups that challenged the opacity of the stress test framework, according to the ABA Banking Journal. The ABA and BPI praised the final rules, saying they should improve accuracy and allow more thoughtful capital planning.
The split between Bowman and Barr shows the ongoing debate over the stress test: whether more openness and stability improve the exercise, or whether letting banks see scenarios in advance blunts it as a supervisory tool.
What’s next
The next markers are the first annual public comment process on scenarios, with the ABA Banking Journal citing a January 10 disclosure deadline, the 2027 test run on the newly adopted models, and the start of averaging in 2028. Comments on the noninterest income model proposal will be due 60 days after it appears in the Federal Register.
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