Fed’s Stress-Test Transparency Proposals Seen as ‘Step in the Right Direction’

In addition to stress testing scenarios for 2026, which were finalized on February 4, the Federal Reserve Board issued a new proposal for longer-lasting changes in the annual supervisory exercise mandated by the post-financial-crisis Dodd-Frank Act.

Long sought by the biggest banks – and advocated within the Fed by governors including Randal K. Quarles, who was vice chair for supervision from 2017 to 2021 – the “proposals to enhance the transparency and public accountability of its annual stress test” were spurred by a 2024 lawsuit complaining that the regulator’s opaque models resulted in volatile and sometimes unjustifiably high capital requirements.

“I am disappointed that the board’s actions to address longstanding issues with the stress testing framework were not addressed proactively, but instead only after a lawsuit became inevitable,” Michelle Bowman, the current vice chair for supervision, said on October 24 last year.

Michelle W. Bowman

The Fed took a necessary step “to promote due process and transparency,” Bowman stated, adding that “lack of transparency can lead to uncertainty for banks in capital planning,...