Fed adopts rules to increase stress test transparency and halve buffer volatility

The Federal Reserve Board will issue final rules that reshape the supervisory stress-testing framework for large banks. The rules aim to improve model and scenario transparency, increase public accountability, and reduce the volatility of the stress capital buffer (SCB).

The Enhanced Transparency and Public Accountability final rule requires the Board to publish detailed information on each stress-test model, including equations, variables, coefficients, underlying assumptions, limitations, and decision-making rationale. It also mandates disclosure of alternative model considerations and planned changes for the 2027 stress test. In addition, the Board will release the full scenario-design process, expanding guidance beyond the current unemployment-rate and housing-price variables to cover additional U.S. and international economic indicators, macroeconomic model paths, and the construction of the global market shock.

A second final rule reduces SCB volatility by averaging the results of a bank's two most recent annual stress tests. The approach "reduces SCB volatility by half without materially changing aggregate levels of required capital." It also delays the annual effective date of the SCB requirement from October 1 to January 1 of the following year, aligning compliance with the calendar year and giving banks more time to implement the capital requirement.

The Board will also propose a revision to the 2027 stress-test models for noninterest income, seeking comment on a model that better captures fee and trading revenue diversity across firms.

The Board will consider the final revisions in the coming weeks and expects to finalize reforms to risk-based capital requirements and the global systemically important bank surcharge before the end of the year. The new transparency and volatility-reduction measures will apply to the 2026 stress-test scenario design and the 2027 capital buffer calculations.