FRB Adopts New Stress Test Models

The Federal Reserve Board ("FRB") adopted most of its supervisory stress test models for large banks as proposed.

The models will apply in the 2027 stress test. The FRB proposed them in October 2025 (see prior coverage) and received 30 comments. With its September 30, 2026, review of comments, it issued two final rules: (i) annual public input on scenarios and material model changes, plus a second global market shock each year; and (ii) averaging results from the two most recent stress tests in setting stress capital buffer requirements. It said the changes together should cut year-over-year volatility in capital requirements by about 50 percent. They are not expected to materially change aggregate requirements.

The 2027 test uses a December 31, 2026, jump-off date. Proposed scenarios are due by January 10, 2027, and final model documentation by May 15, 2027. Averaged buffer requirements take effect January 1, 2029.

Board Governor Michael Barr opposed the final rule, saying disclosed models and annual comment would make the test less responsive and more prone to bank optimization. Governor Lisa Cook supported it and urged exploratory scenarios that do not affect capital. The Bank Policy Institute and American Bankers Association welcomed the rules.