The Federal Reserve Board has announced a request for public comment on proposed changes aimed at increasing the transparency and accountability of its annual stress test. The proposals focus on the models used in the stress test, adjustments to the framework guiding hypothetical scenarios, and details about the scenarios for the 2026 test.
The annual stress tests are conducted to make sure that large banks have enough capital to continue lending during severe economic downturns. In December 2024, the Board indicated it would make significant modifications to strengthen these tests.
“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.”
Additional elements open for comment include enhancing disclosure processes in future cycles, modifying timelines so there is time for scenario feedback, and updating reporting forms with the aim of reducing burdens while improving risk assessment.
Outcomes from annual stress tests often fluctuate due to scenario design, which can lead to volatility in capital requirements year over year. However, according to Board estimates, these proposed changes are not expected to result in major shifts in overall capital requirements across different scenarios or starting conditions.
Public comments on scenarios for 2026 are due by December 1, 2025. Comments regarding increased model and scenario transparency must be submitted by January 22, 2026.
