Fed finalises changes to bank stress tests and capital requirements

One final rule will require the Fed to seek public input each year on its stress-test scenarios and any material changes to its models. It also sets the models for the 2027 test. Banks with large trading books will face two versions of the global market shock each year, with the larger loss used in each bank’s results. [1]

Under the second rule, the Fed will use the average of a bank’s two most recent annual supervisory stress-test results to calculate its stress capital buffer, provided the bank was tested in both years. Averaging will begin in 2028. The Fed estimates that the changes are likely to cut year-on-year volatility in capital requirements by about half, without materially changing requirements across banks as a whole. [1]