On September 18, Fed Vice Chair for Supervision Michelle Bowman signaled that the Board will consider finalizing two stress testing reform rules in the coming weeks. The first rule, proposed in October 2025 (previously covered by InfoBytes here), would require the Board to publish detailed stress test model information along with enhanced scenario design guides beyond the two currently provided, covering additional U.S. and international economic variables and the global market shock framework. The second rule, proposed in April 2025, aims to reduce stress capital buffer (SCB) volatility by averaging the results of a bank’s two most recent annual stress tests and delaying the annual effective date of the SCB requirement from October 1 to January 1 of the following year to align with the calendar year. Bowman stated the two rules together would reduce SCB volatility by half without materially changing aggregate capital levels and noted two public comments under consideration: one recommending a specified date to freeze firm balance sheets before scenario release, and another recommending two global market shock scenarios with the larger loss used to calculate the SCB.

Bowman also indicated the Board expects to finalize reforms to risk-based capital requirements and the global systemically important bank surcharge (previously covered by InfoBytes here) before the end of the year. The vice chair also previewed a third proposal that would seek public comment on a revised noninterest income model for the 2027 stress test, which Bowman said would better capture business diversity across firms in fee and trading revenue from activities such as wealth management, investment banking, and market making. Beyond these regulatory changes, the vice chair outlined plans to expand stress testing as a non-public supervisory tool. Under this approach, the Fed would conduct additional scenario analyses to identify firm-specific vulnerabilities to financial and nonfinancial risks, engage in direct dialogue with firms about their own enterprise-wide stress tests, and incorporate reverse stress testing — in which firms design scenarios that would materially impair their financial condition. Bowman emphasized that the results of these “forward-looking” exercises would not affect capital requirements or be made public, but would instead help prioritize supervisory attention toward how the bank assesses and builds resiliency against material risks.