Federal Reserve Speeches·Sep 18, 2026, 9:30 AM ET

Bowman, The Final Chapter on Modernizing Bank Regulatory Stress Testing

The Federal Reserve Board is finalizing revisions to the U.S. banking stress testing framework to address historical flaws including opacity, unpredictability, & lack of public accountability.
New rules will mandate enhanced transparency by publishing detailed information on stress test models, equations, variables, assumptions, & scenario design processes.
Volatility in the Stress Capital Buffer (SCB) requirement will be reduced by 50% through a new method that averages results from two consecutive annual stress tests.
The effective date for SCB requirements will shift from October 1 to January 1 to align compliance with the calendar year & allow more time for implementation.
Proposed revisions for the 2027 stress test include a new model for noninterest income to better capture business diversity across firms.
Future forward-looking exercises will be introduced to identify firm-specific vulnerabilities to financial & nonfinancial risks without affecting capital requirements.
Supervisors plan to utilize scenario analysis, open dialogue with banks, & reverse stress testing to improve the identification of idiosyncratic risks & enhance supervisory focus.
The reforms aim to create a durable framework where capital requirements are rational, robust, aligned with risk, & compliant with U.S. administrative procedure laws.
Lessons from the Silicon Valley Bank collapse are cited as justification for earlier identification of vulnerabilities through improved stress testing methodologies.
These changes represent the culmination of a multiyear effort to ensure the stress testing framework is credible, effective, & fair for the largest U.S. banks.