Fed Finalizes Stress-Test Overhaul to Cut Capital-Requirement Volatility

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3▲5 ▼0Impact / 5
Summary · why it matters

The Federal Reserve has finalized major changes to its annual bank stress-testing framework, aiming to make the process more transparent and reduce swings in stress-related capital requirements. The Fed finalized two rules that largely follow proposals released in 2025 and significantly modify how stress capital buffers, or SCBs, are determined. Under the first rule, the central bank will seek public feedback each year on its hypothetical stress scenarios and material changes to the models used to estimate bank losses, provide additional documentation on those models, and revise the annual testing calendar. Under the second rule, beginning in 2028, a bank's SCB will be calculated using the average results of its two most recent annual supervisory stress tests, provided it participated in both. According to the Fed, the combined changes could reduce year-over-year volatility in capital requirements by roughly 50%, while leaving aggregate capital requirements across the banking system broadly unchanged. The changes are particularly relevant for major U.S. banks including JPMorgan Chase & Co., Bank of America Corporation, Citigroup Inc., Wells Fargo & Company and The Goldman Sachs Group, Inc.; JPMorgan, Bank of America and Wells Fargo currently have SCBs of 2.5%, compared with 3.6% for Citigroup and 3.4% for Goldman Sachs. Banks with large trading books will be subject to two global market-shock components, with the scenario generating the larger loss used in the calculation, a provision relevant to Goldman Sachs, JPMorgan and Citigroup, and the Fed is also seeking feedback on revisions to its non-interest-income model to better reflect differences in banks' fee-generating businesses.

Impact on assets 5

Financials▲
Bank of America Corp
BAC
▲ PositiveRegulationrelevance

Fed's finalized stress-test overhaul cuts SCB volatility ~50% and keeps aggregate capital requirements broadly unchanged, easing capital-planning uncertainty for BofA.

Goldman Sachs Group Inc
GS
▲ PositiveRegulationrelevance

Goldman Sachs, with a 3.4% SCB and large trading book, gains from the finalized stress-test changes and the two global market-shock components provision.

Wells Fargo & Company
WFC
▲ PositiveRegulationrelevance

Wells Fargo, with a 2.5% SCB, benefits from the Fed's finalized stress-test overhaul reducing swings in capital requirements.

Digital Finance & Tokenization▲
Citigroup Inc.
C
▲ PositiveRegulationrelevance

Citigroup, with a 3.6% SCB, benefits from the Fed's finalized rules reducing year-over-year capital-requirement volatility.

JPMorgan Chase & Co
JPM
▲ PositiveRegulationrelevance

JPMorgan, a major U.S. bank with a 2.5% SCB and large trading book, benefits from the Fed's finalized rules cutting capital-requirement volatility.