Fed finalizes stress test rules, halving swings in capital requirements
Two final rules are locked in: buffers will be averaged over two years from 2028, giving banks more certainty without changing aggregate requirements.
The Federal Reserve finalized two stress test rules on September 30, saying the changes are likely to reduce year-over-year volatility in capital requirements by roughly 50 percent, with no material effect on aggregate requirements.
The first rule requires the Fed to invite public input annually on stress test scenarios and material model changes, and adopts the models for the 2027 test. Banks with large trading books will now face two global market shock components each year, with the larger loss used in their results.
The second rule requires averaging stress capital buffer requirements over the two most recent annual tests, starting in 2028, so that only models shaped by public input enter the calculation. Vice Chair for Supervision Michelle Bowman said the changes make the test more transparent and risk-sensitive.
The Fed also requested comment on revising its noninterest income model, with comments due 60 days after Federal Register publication. The 50 percent volatility reduction is the Fed's own estimate, as is the claim that aggregate requirements are unaffected.