Fed stress tests will feed into bank capital buffers through averaged results starting in 2028 under changes finalized by the Federal Reserve Board on September 30, 2026. The rules also require annual public input on scenarios and material model changes, while banks with large trading books will face competing market-shock calculations. The Board expects the changes together to reduce annual capital-requirement volatility by approximately 50 percent without materially changing aggregate requirements.
Key Takeaways
- Starting in 2028, stress capital buffer calculations will average the two most recent annual supervisory stress-test results for firms tested in both years.
- Banks with large trading books will face two global market shocks annually, with the higher-loss outcome used for each firm.
- The Board finalized transparency requirements and models for the 2027 test, but a separate fee-income model revision remains a proposal.
Table of Contents
- How Fed stress tests will change capital buffers
- Trading banks will face the larger of two shock losses
- Public input becomes an annual requirement
- Fee-income modeling remains open for comment
- Conclusion
How Fed stress tests will change capital buffers
The capital-buffer rule changes how annual test outcomes translate into requirements. For a firm subject to supervisory stress tests in both relevant years, the Board will average results from the two most recent tests rather than rely on a single annual result.
Averaging will begin in 2028 so that only models incorporating public input enter the calculation. That timing separates the finalized policy from its implementation: the new averaging approach does not begin immediately.
The Board’s estimate of approximately 50 percent less year-over-year volatility concerns fluctuations in capital requirements, not a reduction of that size in required capital. It does not expect the changes to materially affect aggregate requirements.
| Item | Details |
|---|---|
| Capital-buffer averaging | Finalized; begins in 2028 using the two most recent annual test results for firms tested in both years. |
| Global market shocks | Two components annually for banks with large trading books; the larger loss determines each firm’s result. |
| Public participation | Annual input required on scenarios and material model changes. |
| Stress-test models | Models adopted for the 2027 stress test. |
| Noninterest income model | Revision proposed, with comments due 60 days after Federal Register publication. |
Trading banks will face the larger of two shock losses
For banks with large trading books, the revised framework changes the global market shock component, which applies shocks to specific market components. These firms will now be tested against two global market shock components each year.
The Board will use whichever shock produces the largest losses for each individual firm when calculating its results. The selection is therefore firm-specific, rather than a single shock being chosen for every affected bank. This higher-loss selection operates alongside the separate move to average annual results for capital buffers.
Public input becomes an annual requirement
The transparency rule requires the Board to invite public input each year on stress-test scenarios and any material model changes. It also updates the framework guiding hypothetical scenario design and adopts the models to be used for the 2027 stress test.
The rule makes several adjustments to the testing calendar as well. The supplied report does not detail those adjustments, so it does not establish a full revised schedule.
The final rules are largely similar to proposals issued in 2025. They follow the Board’s December 2024 announcement that it would modify the test to improve its resilience. The Board describes the test’s purpose as ensuring large banks can remain sufficiently capitalized and continue lending during a severe recession.
Fee-income modeling remains open for comment
A separate proposal would revise the noninterest income model to better capture differences in banks’ fee-generating business models. If adopted, it would replace the current model used to project each bank’s fee income under stress.
Unlike the finalized transparency and capital-buffer rules, this revision is not yet adopted. Comments are due 60 days after publication in the Federal Register, rather than a fixed deadline stated in the supplied report.
Conclusion
The finalized framework combines more public scrutiny with a less volatile method for setting stress-related capital buffers. Its key distinction is timing: models have been adopted for 2027, averaging begins in 2028, and the separate fee-income model change remains under consideration.
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