Finalized stress test changes published by the Federal Reserve

Federal Reserve to Seek Public Comment on Changes to Bank Stress Tests to Enhance Transparency and Reduce Volatility in 2025

Dec 23, 2024, 09:06 PM

The Federal Reserve has announced plans to seek public comment on significant changes to its annual bank stress tests, aiming to enhance transparency and reduce the volatility of resulting capital requirements. The proposed changes include disclosing and seeking public comment on the models used in the stress tests, averaging the results over two years, and allowing public feedback on the hypothetical scenarios before they are finalized. These modifications are intended to improve the resiliency of the stress tests, which have been in place for over 15 years and have led to large banks more than doubling their capital levels, an increase of more than $1 trillion. The Federal Reserve emphasized that these changes are not designed to materially affect overall capital requirements. The public comment process for these comprehensive changes is expected to begin in early 2025, with immediate steps to be taken to reduce volatility in the 2025 stress test. These changes are in response to the evolving legal landscape and changes in the framework of administrative law.