Enhanced Transparency and Public Accountability of the Supervisory Stress Test Models and Scenarios; Modifications to the Capital Planning and Stress Capital Buffer Requirement Rule, Enhanced Prudential Standards Rule, and Regulation LL

FEDERAL RESERVE SYSTEM <CFR>12 CFR Parts 225, 238, and 252</CFR> <DEPDOC>[Regulations Y, LL, and YY; Docket No. R-1873]</DEPDOC> <RIN>RIN 7100-AH05</RIN> <SUBJECT>Enhanced Transparency and Public Accountability of the Supervisory Stress Test Models and Scenarios; Modifications to the Capital Planning and Stress Capital Buffer Requirement Rule, Enhanced Prudential Standards Rule, and Regulation LL</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Board of Governors of the Federal Reserve System (Board). <HD SOURCE="HED">ACTION:</HD> Notice of Proposed Rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Board is inviting public comment on the models used to conduct the Board's supervisory stress test, changes to those models to be implemented in the 2026 stress test, and proposed changes to enhance the transparency and public accountability of the Board's stress testing framework (the proposal). The proposal would amend the Policy Statement on the Scenario Design Framework for Stress Testing, including to implement guides for additional scenario variables, and the Stress Testing Policy Statement. The proposal would also codify an enhanced disclosure process under which the Board would annually publish comprehensive documentation on the stress test models, invite public comment on any material changes that the Board seeks to make to those models, and annually publish the stress test scenarios for comment. Lastly, the proposal would make changes to the FR Y-14A/Q/M to remove items that are no longer needed to conduct the supervisory stress test and to collect additional data to support the stress test models and improve risk capture. </SUM> <DATES> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before January 22, 2026. </DATES> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by Docket No. R-1873 and RIN 7100-AH05, by any of the following methods: • <E T="03">Agency website: https://www.federalreserve.gov/apps/proposals/.</E> Follow the instructions for submitting comments, including attachments. <E T="03">Preferred Method.</E> • <E T="03">Mail:</E> Benjamin W. McDonough, Deputy Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. • <E T="03">Hand Delivery/Courier:</E> Same as mailing address. • <E T="03">Other Means: publiccomments@frb.gov.</E> You must include the docket number in the subject line of the message. Comments received are subject to public disclosure. In general, comments received will be made available on the Board's website at <E T="03">https://www.federalreserve.gov/apps/proposals/</E> without change and will not be modified to remove personal or business information including confidential, contact, or other identifying information. Comments should not include any information such as confidential information that would be not appropriate for public disclosure. Public comments may also be viewed electronically or in person in Room M-4365A, 2001 C St. NW, Washington, DC 20551, between 9 a.m. and 5 p.m. during Federal business weekdays. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Doriana Ruffino, Assistant Director, (202) 452-5235, Hillel Kipnis, Assistant Director, (202) 452-2924, John Simone, Lead Financial Institution Policy Analyst, (202) 245-4256, Ben Ranish, Principal Economist, (202) 973-6964, Nathan Palmer, Senior Economist, (202) 785-6089, and Theo Pistner, Financial Institution and Policy Analyst II, (202) 941-1825, Division of Supervision and Regulation; William Bassett, Senior Associate Director, (202) 736-5644, Bora Durdu, Deputy Associate Director, (202) 452-3755, Elena Afanasyeva, Principal Economist, (202) 736-1971, Levent Altinoglu, Principal Economist, (202) 721-4503, and Sam Jerow, Senior Financial Analyst, (202) 245-4299, Division of Financial Stability; Asad Kudiya, Associate General Counsel, (202) 360-6887, Julie Anthony, Senior Special Counsel, (202) 658-9400, Jonah Kind, Senior Counsel, (202) 452-2045, Brian Kesten, Senior Counsel, (202) 843-4079, Katherine Di Lucido, Senior Attorney, (202) 253-5994, Legal Division. Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. For users of TDD-TYY, please call 711 from any telephone, anywhere in the United States. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Introduction</FP> <FP SOURCE="FP-2">II. Background on Stress Testing Framework, Stress Test Models, and Scenario Design Framework</FP> <FP SOURCE="FP1-2">A. Stress Testing Framework</FP> <FP SOURCE="FP1-2">B. Prior Supervisory Stress Disclosures and Policy Statements</FP> <FP SOURCE="FP1-2">C. Supervisory Stress Test Modeling Framework</FP> <FP SOURCE="FP1-2">D. Stress Test Models</FP> <FP SOURCE="FP1-2">E. Summary of the Proposal</FP> <FP SOURCE="FP1-2">F. Purpose of the Proposal</FP> <FP SOURCE="FP-2">III. Overview of the Stress Test Modeling Framework</FP> <FP SOURCE="FP1-2">A. Supervisory Stress Test Models</FP> <FP SOURCE="FP1-2">B. Supervisory Stress Test Scenarios</FP> <FP SOURCE="FP1-2">C. Data Used in Stress Testing</FP> <FP SOURCE="FP-2">IV. Enhanced Disclosure Process</FP> <FP SOURCE="FP1-2">A. Annual Disclosure of Models</FP> <FP SOURCE="FP1-2">B. Model Changes</FP> <FP SOURCE="FP1-2">C. Material Model Changes</FP> <FP SOURCE="FP1-2">D. Annual Disclosure of Scenarios</FP> <FP SOURCE="FP1-2">E. Stress Capital Buffer Requirement Reconsideration Process</FP> <FP SOURCE="FP-2">V. Revisions to the Stress Testing Policy Statement</FP> <FP SOURCE="FP1-2">A. Future Supervisory Stress Test Results Disclosures</FP> <FP SOURCE="FP1-2">B. Other Revisions to the Stress Testing Policy Statement</FP> <FP SOURCE="FP-2">VI. Other Revisions to the Stress Testing and Capital Plan Rules</FP> <FP SOURCE="FP1-2">A. Stress Test Jump-Off Date Change</FP> <FP SOURCE="FP1-2">B. Global Market Shock Date</FP> <FP SOURCE="FP1-2">C. Amendment to the Dividend Add-On Component Calculation</FP> <FP SOURCE="FP-2">VII. Revisions to the FR Y-14A/Q/M</FP> <FP SOURCE="FP-2">VIII. Proposed Changes to the Stress Test Modeling Framework</FP> <FP SOURCE="FP1-2">A. Proposed Changes to Stress Test Models</FP> <FP SOURCE="FP1-2">B. Analysis of Proposed Model Changes</FP> <FP SOURCE="FP-2">IX. Proposed Changes to the Scenario Design Policy Statement</FP> <FP SOURCE="FP1-2">A. Changes to the Background and Overview and Scope Sections</FP> <FP SOURCE="FP1-2">B. Changes to the Content of the Stress Test Scenarios Section</FP> <FP SOURCE="FP1-2">C. Approach for Formulating Macroeconomic Assumptions in the Baseline Scenario</FP> <FP SOURCE="FP1-2">D. Scenario Narrative: Refinement to the Recession Approach</FP> <FP SOURCE="FP1-2">E. Changes to Construction of Certain Variables in the Severely Adverse Scenario</FP> <FP SOURCE="FP1-2">F. Scenario Design Principles Derived From Stress Testing Literature: Severity, Credibility, and Procyclicality</FP> <FP SOURCE="FP1-2">G. Description of Variable Guides in the Severely Adverse Scenario</FP> <FP SOURCE="FP1-2">H. Global Market Shock</FP> <FP SOURCE="FP-2">X. Economic Analysis</FP> <FP SOURCE="FP-2">XI. Administrative Law Matters</FP> <FP SOURCE="FP1-2">A. Paperwork Reduction Act Analysis</FP> <FP SOURCE="FP1-2">B. Regulatory Flexibility Act Analysis</FP> <FP SOURCE="FP1-2">C. Plain Language</FP> <FP SOURCE="FP1-2">D. Providing Accountability Through Transparency Act of 2023</FP> </EXTRACT> <HD SOURCE="HD1">I. Introduction</HD> In December 2024, the Board announced that it would propose significant changes to improve the transparency of the supervisory stress test and reduce the volatility of resulting capital requirements. <SU>1</SU> <FTREF/> The Board noted it planned to propose changes to disclose and seek public comment on the models that determine the hypothetical losses and revenue of banks under stress and ensure that the public can comment on the hypothetical scenarios used annually for the test, before the scenarios are finalized. With this proposal, the Board is inviting public comment on the comprehensive model documentation for the 2026 stress test, as well as proposed changes to the models relative to the 2025 stress test. The comprehensive model documentation is available at <E T="03">https://www.federalreserve.gov/supervisionreg/dfa-stress-tests-2026.htm.</E> The Board is inviting comment on the proposed scenarios for the 2026 stress test through a separate notice. <FTNT> <SU>1</SU>   <E T="03">See</E> Board, Press Release (Dec. 23, 2024), <E T="03">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20241223a.htm.</E> In February 2025, the Board reiterated its previous announcement that it would begin the public comment process on changes to the supervisory stress test. <E T="03">See</E> Board, Press Release (Feb. 5, 2025), <E T="03">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250205a.htm.</E> </FTNT> This proposal seeks to improve the transparency and public accountability of the supervisory stress test, while ensuring that the stress test remains an effective tool for understanding and assessing risk and retaining appropriate risk sensitivity and risk capture in capital requirements. The Board periodically reviews its regulations, including transparency efforts surrounding its regulations, to ensure they continue to achieve their goals in an effective and efficient manner. In addition to the changes discussed herein, the Board is also considering the effectiveness of its regulatory capital and capital planning requirements for large firms to ensure they remain cohesive and effective, maintain the resilience of the banking sector, and minimize any unnecessary burden. If appropriate, the Board wil ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 622k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━