The US Federal Reserve is planning a major overhaul of annual bank stress tests in a bid to increase transparency

The US Federal Reserve is preparing to overhaul its annual stress tests for major banks, a move seen as a major victory for the financial sector after years of complaints about opacity and unpredictability | Photo credit: Aaron Schwartz/Reuters

The US Federal Reserve is about to unveil a revision to its annual “stress tests” of major banks, giving the industry a long-awaited victory over an exercise they have long complained is opaque and burdensome.

The Fed will meet Friday to vote on a proposal that is expected to dramatically change the annual exam, shifting it from a painstaking exercise in which banks are told little about the process to one in which the U.S. central bank opens up its models and the scenarios it comes up with for each annual exam.

Banks have complained for years that the test should be more transparent and predictable, and that message has been echoed by President Donald Trump’s appointees such as Michelle Bowman, the Fed’s vice chair for supervision, who is leading the overhaul.

Examining the resilience of big banks became an annual exercise after the 2008 global financial crisis, when the Fed tried to determine how banks would perform during a hypothetical severe economic downturn. The results determine how much capital the big banks will need to hold in the coming year, with larger losses in the test requiring a larger ‘stress capital buffer’ against potential losses for each company.

But proposed changes to make the test more transparent are also likely to make it more predictable, allowing banks to more accurately set aside capital and deploy excess funds through more loans, dividends or share buybacks, analysts said.

“The Federal Reserve’s revelations should make the annual stress test less volatile. That should allow banks to reduce the amount of additional capital they hold to protect against this volatility. It should also help banks better optimize their use of capital,” Jaret Seiberg, an analyst at TD Cowen, said in a note.

The feud over the stress tests came to a head late last year, when banking industry trade groups sued the Fed over the exercise. The trial was postponed after the central bank said it was already considering some of the changes wanted by the industry, including making its test models and scenarios public and responding to feedback.

Published on October 24, 2025