Fed Moves to Make Bank Stress Tests More Transparent

Federal Reserve plans to publish bank stress-test models, equations and scenarios as part of broader transparency reforms.

The Federal Reserve is preparing to make its bank stress-testing framework substantially more transparent, with plans to publicly disclose detailed information about the models, equations and scenarios used to assess large banks.

The development was highlighted by Cointelegraph in a post on X. The Federal Reserve said on Sept. 18 that it is moving toward reforms that would increase transparency and public accountability in its supervisory stress tests, including disclosure of the models used to calculate hypothetical bank losses and capital requirements.

Fed Plans Detailed Model Disclosures

Under the proposed transparency framework, the Federal Reserve would publish detailed documentation covering the stress-test models. The disclosures would include equations, variables, coefficients, underlying assumptions, limitations and the rationale behind modeling decisions.

The Fed also plans to disclose alternative model considerations and specific changes it intends to make for the 2027 stress test. The goal is to give the public greater visibility into how the models used to determine losses under stressed economic conditions are constructed and applied.

The transparency measures build on a proposal issued by the Federal Reserve that sought public comment on the models used in its supervisory stress tests. The proposal also called for the annual publication of comprehensive model documentation and for future stress-test scenarios to be released for public comment.

Stress-Test Scenarios to Receive Greater Disclosure

The changes extend beyond the mathematical models. The Federal Reserve said it would provide more detailed information about the process used to design stress-test scenarios and expand guidance covering scenario variables.

Currently, the Fed provides guides for variables including the unemployment rate and housing prices. Under the planned framework, additional guidance would cover variables related to the U.S. and international economies, as well as components used to construct the global market shock and other elements of the scenario-design process.

Stress tests use hypothetical economic and financial conditions to evaluate whether large banks have sufficient capital to absorb losses while continuing to operate during periods of severe stress. The 2026 supervisory stress-test scenarios, for example, covered 28 variables and extended from the first quarter of 2026 through the first quarter of 2029.

Reforms Could Change How Capital Requirements Are Calculated

The Fed is also proposing changes to reduce volatility in the stress capital buffer, a component of the capital requirements applied to large banks. One proposed change would use the results of a bank's two most recent annual stress tests when determining the buffer, rather than relying on a single year's results.

Vice Chair for Supervision Michelle W. Bowman said the reforms are intended to improve the reliability and transparency of the framework while giving banks greater clarity about how their risk profiles affect capital requirements.

The Federal Reserve said its board will consider final revisions to the stress-testing framework in the coming weeks. It also expects to consider changes to the models used for the 2027 stress test, including a proposed revision to the model for noninterest income.

writer: Ethan Collins
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