In remarks in London, Federal Reserve Board Vice Chair for Supervision Michelle W. Bowman outlined revisions to the bank stress testing framework that the Board will consider in the coming weeks. The reforms would increase model and scenario transparency and reduce volatility in the stress capital buffer, while an expanded supervisory approach would use additional scenarios to identify firm-specific financial and nonfinancial vulnerabilities without affecting capital requirements. The changes form part of the Federal Reserve’s broader modernization of bank capital rules, with risk-based capital and global systemically important bank surcharge reforms also expected to be finalized before year-end. The transparency rule would require detailed disclosure of stress test models, assumptions, limitations and scenario design, including planned model changes for the 2027 test. A separate rule would average each bank’s two most recent annual test results and move the stress capital buffer’s effective date from Oct. 1 to Jan. 1, cutting volatility by half without materially changing aggregate required capital. Bowman will also recommend a proposal to replace the current noninterest income model for the 2027 test with one designed to better reflect differences in banks’ businesses. Beyond capital calibration, Bowman plans to develop confidential supervisory exercises using additional scenarios, firm analyses and reverse stress testing to detect emerging or idiosyncratic risks and direct supervisory attention. She expects to provide further details in the coming months as the outstanding proposals are finalized.
2026-09-18Federal Reserve Board
Federal Reserve Board’s Bowman outlines final stress test reforms and expanded supervisory scenario analysis
Federal Reserve Board Vice Chair for Supervision Michelle W. Bowman outlined forthcoming stress test reforms that would expand model and scenario disclosures and halve stress capital buffer volatility through two-year averaging. She will also recommend a revised noninterest income model for the 2027 test. A separate expansion of confidential scenario analysis and reverse stress testing would target firm-specific vulnerabilities without affecting capital requirements.