Overview
- The Federal Reserve Board voted 6–1 on Wednesday to adopt two final rules that change how it runs and uses its supervisory stress tests.
- One rule requires the Fed to seek public input each year on hypothetical scenarios and major model changes, adopts the models for the 2027 stress test, and updates the market-shock test used for large trading-book banks.
- The second rule directs the Fed to average the two most recent annual supervisory stress-test results when setting a firm's stress capital buffer, with averaging to begin in 2028 to ensure only models that received public input are used.
- The Fed says the package should cut year-over-year volatility in stress-test-related capital requirements by roughly 50% and should not materially change overall capital levels, while Governor Michael Barr dissented saying the changes risk weakening resilience and industry groups welcomed the outcome.
- The stress capital buffer is the extra capital added after stress tests that limits payouts and guides bank safety, so the changes could make capital planning and dividend decisions steadier and reduce the chance of sudden capital-driven pullbacks in lending; the Fed also opened a 60-day comment period on a proposed revision to its noninterest-income model.