Consistent with its prior statement, the Federal Reserve Board on Friday requested comment on proposals to enhance the transparency and public accountability of its annual stress test. The proposals seek comment on: the stress test models; changes to the framework that guides the design of the hypothetical scenarios; and the hypothetical scenarios for the upcoming 2026 stress test.
The Federal Reserve conducts stress tests to ensure that large banks are sufficiently capitalized and able to lend to households and businesses even in a severe recession. In December 2024, the Board announced it would modify the test in important respects to improve its resilience.
"In an effort to avoid litigation, the Board committed to make significant improvements in the transparency of the stress tests. These proposals take a necessary step toward fulfilling that commitment, and would promote due process," said Vice Chair for Supervision Michelle W. Bowman. "Regulated firms should be subject to clearly articulated and transparent rules. Capital requirements should not be set in a way that is shielded from meaningful public scrutiny. As vice chair for supervision, I am committed to providing transparency and accountability for both the Board and our supervised firms. This is essential for maintaining the value of our stress testing program, and for supervision and regulation more broadly."
The proposals request comment on several other elements, including an enhanced disclosure process for future stress test cycles, adjustments to the annual timeline to accommodate a comment period for scenarios, and enhancements to reporting forms to reduce burden and improve risk capture.
Annual stress test outcomes vary from year to year based on a number of factors including scenario design. Although historically, outcomes have varied significantly, resulting in volatility in capital requirements from year to year based on that design, in aggregate, the Board estimates that the proposed stress test model and scenario changes would not materially change capital requirements for firms subject to the supervisory stress test, across various stress scenarios and starting test conditions.
Comments on the 2026 scenarios are due by December 1, 2025. Comments on the proposal enhancing model and scenario transparency are due by January 22, 2026.
