Fed finalizes stress test changes, seeks comment on fee-income model

• Two final rules were adopted to change stress test design and capital calculations.
• The Fed said it will begin averaging stress capital buffer requirements in 2028.
• The Board also asked for comment on a proposal tied to fee income models.

The Federal Reserve Board on Wednesday finalized changes to its stress test framework and stress capital buffer calculations. It said the new steps are meant to improve transparency and public accountability and reduce volatility in stress test-related capital requirements.

Fed finalizes stress test changes, seeks comment on fee-income model

The Board said the changes are largely similar to proposed rules from 2025. It also asked for comment on a proposal to better capture differences in banks' business models for generating fee income.

Stress test changes

The first final rule requires the Board to invite public input annually on stress test scenarios and any material model changes. It also updates the framework used to design hypothetical scenarios and adopts the models for the 2027 stress test.

The rule also adjusts the stress test calendar and updates the global market shock component. Banks with large trading books will be tested against two global market shock components each year, and the Board will use the shock that produces the largest losses for each firm.

Capital calculations

The second final rule requires the Board to average the results from the two most recent annual supervisory stress tests when calculating stress capital buffer requirements for firms subject to the test in both years.

The Board said it will begin averaging stress capital buffer requirements in 2028. It said that is to ensure only models incorporating public input are used in the calculation.

Comment request

The proposal seeks public comment on a revision to the Board's noninterest income model. The Board said the change would improve the stress test's ability to capture business model diversity across firms.

If adopted, the adjustments would replace the current noninterest income model that projects each bank's fee income under stress. Comments are due 60 days after publication in the Federal Register.

The Board said the changes are likely to reduce year-over-year volatility in capital requirements by approximately 50 percent. It said they are not expected to materially affect aggregate capital requirements.