Rule2026-20246
Modifications to the Capital Plan Rule and Stress Capital Buffer Requirement
Primary source
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Published
October 2, 2026
Effective
December 1, 2026
Issuing agencies
Federal Reserve System
Abstract
The Board is adopting a final rule to amend the calculation of the Board's stress capital buffer requirement applicable to certain large bank holding companies, savings and loan holding companies, U.S. intermediate holding companies of foreign banking organizations, and nonbank financial companies supervised by the Board to reduce the volatility of the stress capital buffer requirement. The final rule uses the average of the maximum common equity tier 1 capital ratio declines projected in each of the Board's prior two annual supervisory stress tests to inform a firm's stress capital buffer requirement. The final rule also extends the annual effective date of the stress capital buffer requirement by one quarter, to January 1, to provide additional time for firms to comply with the requirement. In addition, the Board is adopting changes to the FR Y-14A/Q/M reports to collect additional net income data that would improve the accuracy of the stress capital buffer requirement calculation. The final rule also amends the Stress Testing Policy Statement to remove the phase-in of highly material supervisory model changes.
Full Text
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[Federal Register Volume 91, Number 190 (Friday, October 2, 2026)]
[Rules and Regulations]
[Pages 62636-62654]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-20246]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 225, 238, and 252
[Regulations Y, LL, and YY; Docket No. R-1866]
RIN 7100-AG92
Modifications to the Capital Plan Rule and Stress Capital Buffer
Requirement
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Final rule.
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SUMMARY: The Board is adopting a final rule to amend the calculation of
the Board's stress capital buffer requirement applicable to certain
large bank holding companies, savings and loan holding companies, U.S.
intermediate holding companies of foreign banking organizations, and
nonbank financial companies supervised by the Board to reduce the
volatility of the stress capital buffer requirement. The final rule
uses the average of the maximum common equity tier 1 capital ratio
declines projected in each of the Board's prior two annual supervisory
stress tests to inform a firm's stress capital buffer requirement. The
final rule also extends the annual effective date of the stress capital
buffer requirement by one quarter, to January 1, to provide additional
time for firms to comply with the requirement. In addition, the Board
is adopting changes to the FR Y-14A/Q/M reports to collect additional
net income data that would improve the accuracy of the stress capital
buffer requirement calculation. The final rule also amends the Stress
Testing Policy Statement to remove the phase-in of highly material
supervisory model changes.
DATES: The final rule is effective December 1, 2026.
FOR FURTHER INFORMATION CONTACT: Doriana Ruffino, Associate Director
(202) 452-5235, Hillel Kipnis, Assistant Director, (202) 452-2924, John
Simone, Manager (202) 245-4256, Alice Moore, Senior Financial
Institution Policy Analyst II, (202) 360-0155, and Mehdi Beyhaghi,
Principal Economist, (202) 973-6909, Division of Supervision and
Regulation; Asad Kudiya, Associate General Counsel, (202) 360-6887,
Julie Anthony, Senior Special Counsel, (202) 658-9400, and Kirin Walsh,
Senior Counsel, (202) 391-1963, 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. Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Changes to the Stress Capital Buffer Requirement
A. Introduction
B. Changes to the Calculation of the Stress Capital Buffer
Requirement
C. Changes to the Annual Effective Date of the Stress Capital
Buffer Requirement
D. Changes to the FR Y-14 Reporting Forms
II. Economic Analysis
A. Baseline Analysis
B. Final Rule Versus Baseline
C. Reasonable Alternatives
D. Analysis of Benefits and Costs
E. Comments Related to Economic Analysis
III. Administrative Law Matters
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Plain Language
I. Changes to the Stress Capital Buffer Requirement
A. Introduction
1. Background on Stress Testing and the Stress Capital Buffer
Requirement
Stress testing is a fundamental element of the Board's regulatory
framework and supervisory program for large firms. It enables the Board
to assess whether large bank holding companies, savings and loan
holding companies, U.S. intermediate holding companies of foreign
banking organizations, and nonbank financial companies supervised by
the Board (collectively, firms) have sufficient capital to absorb
potential losses under hypothetical stress scenarios and continue
lending under severely adverse conditions, although it is not designed
or intended to be predictive of future economic conditions.
In March 2020, the Board established the stress capital buffer
requirement
[[Page 62637]]
framework.\1\ Under the stress capital buffer requirement framework,
the Board calculates each firm's preliminary stress capital buffer
requirement as the difference between the firm's starting and minimum
projected common equity tier 1 capital ratio under the severely adverse
scenario in the supervisory stress test (stress capital decline
component), plus four quarters of planned common stock dividends as a
percentage of risk-weighted assets (dividend add-on component).\2\ The
stress capital buffer requirement has a minimum value of 2.5 percent of
a firm's risk-weighted assets.\3\ A firm can adjust the amount of its
planned dividends after receiving its preliminary stress capital buffer
requirement. A firm can also request reconsideration of the calculation
of its preliminary stress capital buffer requirement. The final stress
capital buffer requirement, which includes adjusted dividends and any
revisions to a firm's stress capital decline component following a
reconsideration of its preliminary stress capital buffer requirement,
becomes part of the firm's ongoing capital requirements.\4\ A firm
subject to Category I-III standards must participate in the supervisory
stress test every year, whereas a firm subject to Category IV standards
is generally required to participate every other year, unless the firm
chooses, or is otherwise required, to be subject to the supervisory
stress test on a more frequent basis.\5\
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\1\ See 85 FR 15576 (March 18, 2020).
\2\ 12 CFR 217.11(a)(2)(vi), 12 CFR 225.8(f)(2)(i), and 12 CFR
238.170(f)(2)(i).
\3\ 12 CFR 225.8(f)(2)(ii) and 12 CFR 238.170(f)(2)(ii).
\4\ 12 CFR 217.11(c)(1)(iii).
\5\ See 12 CFR 217.2; 12 CFR 238.10; 12 CFR 252.5; 84 FR 59032
(Nov. 1, 2019).
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As described in the proposal issued on April 22, 2025 (proposal or
proposed rule), supervisory stress test results can vary based on
changes in a firm's balance sheet, economic conditions, the severely
adverse scenario, and supervisory models used in the stress test.\6\
Standard economic theory holds that abrupt changes in capital
requirements can be costly. Significant year-over-year variation in
capital requirements may impact the provision of banking services.
Abrupt changes in capital requirements could influence decision-making
regarding investment and expansion, create challenges in long-term
capital planning, and impact the supply of credit to households and
businesses. In particular, when a firm's new stress capital buffer
requirement is substantially higher than expected, the firm might
choose to raise equity quickly, which can be complex and more costly
than retaining earnings over time. As described further in the Section
II.D.2 of this SUPPLEMENTARY INFORMATION, the results of the 2025
supervisory stress test further demonstrated volatility in the results
for individual firms.\7\
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\6\ See 90 FR 16843 (April 22, 2025).
\7\ Because the Board did not use the results of the 2026
supervisory stress test to update firms' stress capital buffer
requirements, 2026 results are not included in the impact analysis.
See Board, Press Release (Feb. 4, 2026), <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20260204a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20260204a.htm</a>.
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In October 2025, the Board issued additional proposals to increase
the transparency of the supervisory stress test (``enhanced
transparency and public accountability proposal'').\8\ These proposals
sought to improve the transparency and public accountability of the
supervisory stress test while ensuring that the test remains an
effective tool for understanding and assessing risk and retaining
appropriate risk sensitivity and risk capture in capital requirements.
Final action related to those proposals is addressed in a separate
Federal Register notice (``enhanced transparency and public
accountability final rule'').
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\8\ See 90 FR 51856 (Nov. 18, 2025), available at <a href="https://www.federalregister.gov/d/2025-20211">https://www.federalregister.gov/d/2025-20211</a>.
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Statutory Authorities for the Board's Stress Testing and Stress Capital
Buffer Framework
The International Lending Supervision Act of 1983 provides the
Board with broad discretionary authority to set minimum capital levels
for state member banks and certain affiliates of insured depository
institutions, including holding companies, supervised by the Board.\9\
Under section 5(b) of the Bank Holding Company Act of 1956 (Bank
Holding Company Act), the Board may issue such regulations and orders
relating to capital requirements of bank holding companies as may be
necessary for the Board to carry out the purposes of the Bank Holding
Company Act.\10\ Foreign banking organizations with a U.S. branch,
agency, or commercial lending company subsidiary are made subject by
the International Banking Act of 1978 (International Banking Act) to
the provisions of the Bank Holding Company Act in the same manner as
bank holding companies; \11\ therefore, the Board is also authorized
under section 5(b) of the Bank Holding Company Act to impose these
requirements on those foreign banking organizations, including on their
U.S. operations. Similarly, with regard to savings and loan holding
companies, section 10(g) of the Home Owners' Loan Act authorizes the
Board to issue such regulations and orders relating to capital
requirements as the Board deems necessary and appropriate to carry out
the purposes of the Home Owners' Loan Act.\12\
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\9\ See 12 U.S.C. 3902(1); 3907(a); 3909(a)(2).
\10\ 12 U.S.C. 1844(b).
\11\ See 12 U.S.C. 3106.
\12\ See 12 U.S.C. 1467a(g)(1).
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Section 165 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act),\13\ as amended by section 401 of the
Economic Growth, Regulatory Relief, and Consumer Protection Act,\14\
requires the Board to establish risk-based capital requirements for
bank holding companies with $250 billion or more in total consolidated
assets and nonbank financial companies supervised by the Board.\15\
Additionally, section 165(i)(1) of the Dodd-Frank Act, as amended by
section 401 of the Economic Growth, Regulatory Relief, and Consumer
Protection Act, requires the Board to conduct an annual supervisory
stress test of bank holding companies with $250 billion or more in
total consolidated assets.\16\ Section 401(e) of the Economic Growth,
Regulatory Relief, and Consumer Protection Act requires the Board to
conduct periodic stress tests for bank holding companies with total
consolidated assets between $100 billion and $250 billion.\17\
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\13\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\14\ Economic Growth, Regulatory Relief, and Consumer Protection
Act, Public Law 115-174, 132 Stat. 1296 (2018).
\15\ See 12 U.S.C. 5365(b)(1)(A)(i). The term bank holding
company as used in section 165 of the Dodd-Frank Act includes a
foreign bank or company treated as a bank holding company for
purposes of the Bank Holding Company Act, pursuant to section 8(a)
of the International Banking Act. See 12 U.S.C. 3106(a); 12 U.S.C.
5311(a)(1). See also section 401(g) of the Economic Growth,
Regulatory Relief, and Consumer Protection Act (regarding the
Board's authority to establish enhanced prudential standards for
foreign banking organizations with total consolidated assets of $100
billion or more).
\16\ See 12 U.S.C. 5365(i)(1).
\17\ 12 U.S.C. 5365 note.
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Section 401 of the Economic Growth, Regulatory Relief, and Consumer
Protection Act also added section 165(a)(2)(C) of the Dodd-Frank Act,
which authorizes the Board to apply any prudential standard established
under section 165 to any bank holding company or bank holding companies
with $100 billion or more in total consolidated assets to which the
prudential standard does not otherwise apply, provided that the Board
(1) determines that application of the prudential standard is
appropriate to
[[Page 62638]]
prevent or mitigate risks to the financial stability of the United
States, or to promote the safety and soundness of such firm(s); and (2)
takes into consideration the capital structure, riskiness, complexity,
financial activities (including financial activities of subsidiaries),
size, and any other risk-related factors of such firm(s) that the Board
deems appropriate.\18\
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\18\ 12 U.S.C. 5365(a)(2)(C).
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2. Overview of the Proposed Rule
On April 22, 2025, the Board issued a proposed rule that would have
amended the calculation of the stress capital buffer requirement to
reduce the volatility of the stress capital buffer requirements.\19\
Specifically, under the proposal, for a firm participating in two
consecutive annual supervisory stress tests, the stress capital decline
component projected in each of the Board's prior two annual supervisory
stress tests would be averaged to inform a firm's stress capital buffer
requirement (results averaging).\20\ The proposal would also have
extended the annual effective date of the stress capital buffer
requirement from October 1 to January 1. The proposal also introduced
revisions to the FR Y-14A/Q/M (Capital Assessments and Stress Testing)
reporting forms to collect data that would provide greater insight into
the net income composition of reporting firms and to eliminate data
fields that are no longer needed to conduct the supervisory stress
test. The proposed rule provided that, in the event of a material
change to a firm's risk profile, financial condition, or corporate
structure (material change) that resulted in a recalculation of the
firm's stress capital buffer requirements, a firm's recalculated stress
capital buffer requirement would not be subject to results
averaging.\21\ In addition, the proposed rule would have amended the
Board's Stress Testing Policy Statement to remove the phase-in of
highly material supervisory model changes.
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\19\ Supra note 8.
\20\ The proposal would have included changes to the timing of
the planned dividends included in the dividend add-on component but
would not have included any other changes to the component.
\21\ In the event of a material change determination, if a
recalculation of the stress capital buffer requirement were not
required, results averaging would have continued to apply for
applicable firms.
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3. Summary of Comments
The Board received sixteen comments on the proposal from banking
organizations, trade associations, public interest groups, private
individuals, and a member of the U.S. Senate.\22\ Most commenters were
supportive of the proposal's objective to reduce volatility in the
stress capital buffer requirement by averaging the results of
supervisory stress tests. Commenters provided a range of views on the
proposed averaging approach, with several commenters expressing support
for and opposition to an asymmetrical averaging approach, which was
included as an alternative in the proposal.
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\22\ See Modifications to the Capital Plan Rule and Stress
Capital Buffer Requirements [R-1866], <a href="https://www.federalreserve.gov/apps/proposals/FR-2025-0026-01/comments">https://www.federalreserve.gov/apps/proposals/FR-2025-0026-01/comments</a>. Some
comments related to the volatility proposal were also included in
responses to the enhanced transparency and public accountability
proposal. Those comments are addressed in a separate rulemaking. See
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 [R-1873], <a href="https://www.federalreserve.gov/apps/proposals/FR-2025-0063-01/comments">https://www.federalreserve.gov/apps/proposals/FR-2025-0063-01/comments</a>.
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Commenters were also broadly supportive of the proposal's extension
of the annual effective date of the stress capital buffer requirement
from October 1 to January 1 and the proposed modifications to the FR Y-
14A/Q/M reports. Some commenters objected to the proposal, asserting
that reducing volatility through averaging of stress test results is
not necessary and would reduce capital levels. Some such commenters
asserted that a supervisory stress test should at times produce large
changes in results for individual firms due to changes in firm risk
profiles and economic conditions. One commenter encouraged the Board to
consider the safety and soundness implications of any changes to the
capital requirements of large firms, noting the potential impact of the
failures of such firms on the Deposit Insurance Fund.\23\
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\23\ This commenter also noted that supervision for community
banks should be tailored to their specific size, characteristics,
and risk profile, rather than applying the requirements for larger
institutions. The commenter specifically noted capital planning and
supervisory stress testing requirements as examples of requirements
to maintain tailoring.
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In response to a question about the dividend add-on component,
several commenters supported removing it from the stress capital buffer
requirement, whereas other commenters supported maintaining the
dividend add-on component or modifying it to include additional planned
capital actions. Commenters provided a variety of suggestions for the
implementation timeline for the stress capital buffer requirement
associated with the 2025 supervisory stress test.
In response to a question about the Board's authority to require
capital plan resubmissions due to changing market conditions, a
commenter asserted that eliminating this authority would represent a
major overhaul of the stress testing framework and would, therefore,
require a separate proposal with its own public comment process.
Several commenters opposed the proposed amendment to the Board's
Stress Testing Policy Statement that would remove the phase-in of
highly material supervisory model changes.
Several commenters recommended that the Board publish the annual
supervisory stress test scenarios for public comment prior to
finalizing them. In addition, several commenters also highlighted
specific concerns with the transparency and adequacy of the supervisory
stress test models and supported issuing those models for public
comment. Some commenters also provided specific suggestions on how to
improve the supervisory stress test models and assumptions. Several
commenters provided suggestions regarding the interaction of the
proposal with other elements of the Board's capital framework and
outstanding proposals on regulatory capital for large firms.
4. Overview of the Final Rule
The Board is finalizing the rule as proposed, with results
averaging to go into effect for stress capital buffer requirements
following the 2028 stress test, as discussed below. For a firm
participating in two consecutive annual supervisory stress tests, the
final rule averages the stress capital decline component projected in
each of the Board's prior two annual supervisory stress tests to inform
a firm's stress capital buffer requirement. The averaging calculation
does not include the dividend add-on component, which will continue to
be updated on an annual basis for all firms subject to the supervisory
stress test.\24\ Consistent with current requirements, for a firm that
is not participating in two consecutive annual stress tests, the final
rule does not apply results averaging, and the stress capital decline
component of such a firm's stress capital buffer requirement is
informed by the results of its most recent supervisory stress test.
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\24\ See 12 CFR 225.8(f)(1); 12 CFR 225.8(f)(4); 12 CFR
238.170(f)(1); 12 CFR 238.170(f)(4).
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The final rule extends the annual effective date of the stress
capital buffer requirement from October 1 to January 1 for all firms
subject to the stress capital buffer requirement. Consistent with the
changes in the effective date of the stress capital buffer requirement,
the final rule updates the definition of the dividend add-on component
to cover dividends issued in quarters five
[[Page 62639]]
through eight of the planning horizon of the supervisory stress test.
The Board has adopted revisions to the FR Y-14A/Q/M reports
consistent with the proposal. The revisions were largely adopted as
proposed, except that the Board amended the FR Y-14Q instructions from
the proposal to clarify the definition of one line item in response to
a comment. Additionally, the Board is not adopting the proposed removal
of items related to pre-provision net revenue (PPNR) from FR Y-14A,
Schedule A.7.a (PPNR Projections Sub-schedule) and FR Y-14Q, Schedule
G.1 (PPNR Submission Worksheet), as certain of these items are used in
the PPNR model proposed for use in the 2027 stress test.\25\ Further,
consistent with the proposal, the final rule provides that if a firm
experiences a material change resulting in a recalculated stress
capital buffer requirement, the Board generally will not use results
averaging for the recalculation.\26\ In addition, the final rule
revises the Board's Stress Testing Policy Statement to no longer
specify that a material supervisory model change will be phased in over
a two-year period.
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\25\ The model documentation is available on the Board's website
at: <a href="https://www.federalreserve.gov/supervisionreg/dfa-stress-tests-2027.htm">https://www.federalreserve.gov/supervisionreg/dfa-stress-tests-2027.htm</a>.
\26\ In addition to a material change, the Board, or the
appropriate Reserve Bank with the concurrence of the Board, may
direct a firm to resubmit its capital plan where the capital plan is
incomplete or contains material weaknesses. 12 CFR
225.8(e)(4)(i)(B)(1); 12 CFR 238.170(e)(4)(i)(B)(1). In
circumstances where the Board recalculates a firm's stress capital
buffer requirement following such a resubmission, the Board would
use results averaging, because the risk profile of the firm is less
likely to have changed materially over the period being averaged.
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The final rule will be effective 60 days after publication in the
Federal Register. Results averaging will begin starting with the stress
capital buffer requirements effective on January 1, 2029. The revisions
to the FR Y-14A/Q/M reporting forms will be effective for the June 30,
2027, report date.
B. Changes to the Calculation of the Stress Capital Buffer Requirement
1. Results Averaging
Under the proposal, for firms participating in two consecutive
annual supervisory stress tests, the stress capital decline component
of the stress capital buffer requirement calculation would have been
averaged over the supervisory stress tests, with the current year and
the prior year weighted equally in the averaging calculation. The
averaging would have been symmetric, meaning that the stress capital
decline component would have been averaged regardless of whether it
resulted in an increase or decrease.
The Board received a number of comments recommending that the final
rule adopt an asymmetric averaging approach, whereby only increases in
the stress capital decline component would be averaged over two stress
tests. These commenters argued that such an approach would reflect that
the costs of volatility are more pronounced as requirements increase
and that implementing a reduction in requirements more quickly would be
consistent with the approach of other capital buffer requirements, such
as the countercyclical capital buffer requirement framework and the
GSIB surcharge requirement framework. Several commenters opposed
incorporating an asymmetric approach, arguing that it would
mechanically lead to a reduction in capital requirements over time. Two
commenters supported applying a higher weight in the averaging
calculation to the most recent results of the supervisory stress test
relative to the prior year's results.\27\ Conversely, one commenter
asserted that weighted averaging would introduce unnecessary complexity
to the averaging framework.
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\27\ One of these commenters objected to the proposal overall
but noted that, should the Board apply averaging, it should do so by
applying a higher weight to the most recent stress test results.
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The Board received some comments opposing the concept of averaging
for the stress capital buffer requirement. These commenters argued that
additional certainty in stress capital buffer requirements from
averaging is not necessary and would result in lower capital levels as
firms would likely distribute more capital.
Consistent with the proposal, the final rule averages the stress
capital decline component symmetrically over the prior two annual
supervisory stress tests.\28\ By averaging the stress capital declines
symmetrically over the prior two stress tests, the final rule would
most effectively and directly reduce volatility for both increases and
decreases in stress test results.
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\28\ To calculate a firm's stress capital buffer requirement,
the final rule (1) averages the stress capital declines from the two
most recent annual supervisory stress tests; then (2) adds the four
quarters of planned dividends for the year in which the requirement
will be effective; and (3) applies, as applicable, the 2.5 percent
floor, in that order.
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Asymmetric averaging would result in more stress capital buffer
requirement volatility than symmetric averaging. It would also
mechanically reduce capital requirements, which would be inconsistent
with the purposes of the proposal. The countercyclical capital buffer
requirement framework and GSIB surcharge requirement framework noted by
commenters serve distinct purposes from the stress capital buffer
requirement framework. Further, the capital buffer requirements
associated with those frameworks have generally been more predictable.
Conversely, given the volatility observed in stress capital buffer
requirements, this final rule aims to mitigate such volatility by
implementing symmetric averaging of stress capital declines.
The Board considered but chose not to adopt an averaging approach
that would place a higher weight on a firm's most recent stress capital
decline. While applying a higher weight to the most recent year's
stress capital decline in the averaging approach could increase the
risk sensitivity of stress capital buffer requirements in certain
circumstances, it would also increase the complexity of the regulatory
capital framework and, depending on the weighting for each year, would
reduce volatility by less than the approach taken in the final rule.
Further analysis of the alternatives supported by commenters is
included in Section II.E of this SUPPLEMENTARY INFORMATION.
2. Application of 2027 and 2028 Stress Capital Buffer Requirements
Under the Final Rule
Under the proposal, the changes to the calculation of the stress
capital buffer requirement would have been effective beginning with the
stress capital buffer requirement calculated using the 2025 stress
test. Those stress capital buffer requirements would have been
calculated using the average of the stress capital decline components
from the 2024 and 2025 supervisory stress test for applicable firms.
One commenter asserted that, if the final rule became effective in
2025 or on January 1, 2026, the rule would undermine the objective of
the proposal because it would introduce additional uncertainty into
capital planning for firms. Several commenters recommended allowing
firms to operate under the existing stress capital buffer requirement
through September 30, 2026, to reduce uncertainty in the capital
planning process and permit firms to opt in to the revised averaging
framework.\29\ Other commenters recommended that the final rule clarify
that the stress capital buffer requirement
[[Page 62640]]
effective through September 30 in the year that the rule takes effect
would apply through December 31 of that year.\30\
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\29\ These commenters also submitted a comment letter earlier in
the comment period asserting that the proposal created uncertainty
for the 2025 supervisory stress test cycle and recommended that
Board issue a public statement confirming the existing stress
capital buffer requirement framework would apply through September
30, 2026, or issue an interim final rule to that effect.
\30\ One commenter on the enhanced transparency and public
accountability proposal reiterated support for two-year averaging of
stress test results in the stress capital buffer calculation but
argued that averaging should only be implemented on a prospective
basis after the Board adopts revised models that incorporate public
comment. See 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 [R-1873],
<a href="https://www.federalreserve.gov/apps/proposals/FR-2025-0063-01/comments">https://www.federalreserve.gov/apps/proposals/FR-2025-0063-01/comments</a>.
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In February 2026, the Board voted to maintain the current stress
capital buffer requirements until 2027, when new requirements can be
calculated based on models that take public feedback into
consideration.\31\ As a result, absent further action from the Board,
each firm is subject to its current stress capital buffer requirement
until it receives a new requirement, which, under this final rule, will
be effective on January 1, 2028. The dividend add-on component of the
requirements that take effect on January 1, 2028, would be shifted
forward in time by one quarter, consistent with this final rule. Firms
subject to Category IV standards that do not participate in the 2027
supervisory stress test will still receive stress capital buffer
requirements that are adjusted to account for updated planned common
stock dividends in 2027. Until January 1, 2029, firms will be subject
to the stress capital buffer requirement without results averaging.
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\31\ See Board, Press Release (Feb. 4, 2026), <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20260204a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20260204a.htm</a>.
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Beginning on January 1, 2029, through December 31, 2029, the stress
capital buffer requirement for firms subject to results averaging will
incorporate the average of the 2027 and 2028 stress capital decline
components, consistent with this final rule. The final rule delays
results averaging until the stress capital buffer requirements
effective on January 1, 2029, to ensure that results used to calculate
the stress capital buffer requirement have been calculated using only
models informed by public input. However, other aspects of this final
rule, including the change in the annual effective date of the stress
capital buffer requirement, the shift forward by one quarter of the
dividend add-on component, and the removal of the phase-in of highly
material model changes, take effect for the stress capital buffer
requirements that would be calculated following the 2027 stress test.
The Board considered comments requesting that firms have an option
to opt into results averaging before the averaging goes into effect for
all firms. However, in order to ensure that future stress capital
buffer requirements are calculated solely using models that have been
subject to public input, this final rule does not allow firms to opt
into results averaging at an earlier date. Further, implementing
results on the same timeline for all firms ensures consistency and
fairness.
3. Dividend Add-On Component
Under the proposal, the stress capital buffer requirement would
have continued to include a firm's stress capital decline component
(under the proposed results averaging) and the dividend add-on
component (updated annually). The proposal would have updated the
definition of the dividend add-on component to cover dividends issued
in quarters five through eight of the planning horizon of the
supervisory stress test to be consistent with the change in the annual
effective date of the stress capital buffer requirement. The proposal's
averaging calculation would not have included the dividend add-on
component, because the dividend add-on component is intended to equal
planned dividends for the year that the stress capital buffer
requirement is in effect, and the amount of this component is at the
firm's discretion, unlike the stress capital decline component.\32\
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\32\ In addition, while a firm must provide the amount of its
dividend add-on component prior to knowing its stress capital
decline component, the firm can revise its dividend add-on component
after receiving its preliminary stress capital buffer requirement.
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Several commenters recommended that the Board eliminate the
dividend add-on component of the stress capital buffer requirement,
noting that the Board's capital buffer requirement framework includes
regulatory limitations on the payments of dividend distributions.\33\
Some commenters noted that the Board has the authority to restrict
capital actions and concluded that the dividend add-on component is
therefore not necessary. One commenter also argued that the dividend
add-on component increases the complexity of the stress capital buffer
requirement. One commenter argued that a firm should be permitted to
dip into and reduce its stress capital buffer requirement by the amount
of a dividend in order to use those pre-funded resources to distribute
to shareholders. A few commenters opposed removing the dividend add-on
component, arguing that such a change would weaken the stress capital
buffer requirement framework by reducing capital requirements and
undermining banking system resilience.\34\ One commenter suggested that
the Board extend the dividend add-on component to include nine quarters
of planned dividends. Another commenter suggested that the Board
restore the previous assumption in the Comprehensive Capital and Review
exercise to include a pre-funding requirement of both planned dividends
and share repurchases over a nine-quarter period.
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\33\ One commenter specifically requested eliminating the
dividend add-on component for intermediate holding companies of
foreign banking organizations, given their different risk profile as
subsidiaries of foreign parents. The commenter asserted that they
effectively do not and, often cannot, distribute capital through
share repurchases, and therefore the exclusion for share repurchases
from the pre-funding of capital actions is unusable.
\34\ Two commenters noted if that the Board were to pursue
removing the dividend add-on component, it should propose the change
with a full public comment process and associated economic analysis.
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Consistent with the proposal, the final rule maintains the dividend
add-on component, which will continue to be updated on an annual basis
and not be subject to averaging. The final rule updates the definition
of the dividend add-on component to cover dividends issued in quarters
five through eight of the planning horizon of the supervisory stress
test. As part of the stress capital buffer requirement, a firm's
dividend add-on component provides important benefits to the regulatory
capital framework by helping to ensure that firms maintain sufficient
capital to absorb losses under hypothetical stress scenarios, issue
planned dividends for the four quarters that the stress capital buffer
requirement is in effect and continue to lend to households and
businesses under stressful conditions. The Board also chose to maintain
the dividend add-on component for intermediate holding companies of
foreign banking organizations, as this approach will maintain the
stress capital buffer requirement framework in a consistent and
comparable manner across all firms subject to the stress capital buffer
requirement and reduce complexity.
4. Material Change
The Board can recalculate a firm's stress capital buffer
requirement if the firm experiences a material change.\35\ Under the
proposal, results averaging
[[Page 62641]]
would not have been applied when recalculating a firm's stress capital
buffer requirement due to a material change.\36\ The Board would have
resumed results averaging for the subsequent stress capital buffer
requirement calculation if such calculation was not a recalculation due
to a material change.\37\
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\35\ A firm that has its stress capital buffer requirement
recalculated outside of the regular timeline is also given the
opportunity to adjust its planned dividends and request
reconsideration of its stress capital buffer requirement.
\36\ For purposes of this discussion, the term ``material
change'' also includes circumstances in which the Board, or the
appropriate Reserve Bank with the concurrence of the Board, has
directed a firm to resubmit its capital plan because its internal
stress scenario(s) are not appropriate for the firm's business model
and portfolios, or changes in financial markets or the macro-
economic outlook that could have a material impact on a firm's risk
profile and financial condition require the use of updated
scenarios. 12 CFR 225.8(e)(4)(i)(B)(3); 12 CFR
238.170(e)(4)(i)(B)(3). In addition to a material change, the Board,
or the appropriate Reserve Bank with the concurrence of the Board,
may direct a firm to resubmit its capital plan where the capital
plan is incomplete or contains material weaknesses. See 12 CFR
225.8(e)(4)(i)(B)(1); 12 CFR 238.170(e)(4)(i)(B)(1). In
circumstances where the Board recalculates a firm's stress capital
buffer requirement following such a resubmission, the proposal
provided that the Board would use results averaging, because the
risk profile of the firm is less likely to have changed materially
over the period being averaged.
\37\ In order to align with results averaging over a two-year
period, the proposal would have used averaging for a firm subject to
Category IV standards when subject to a recalculated stress capital
buffer requirement only if the recalculation and a subsequent annual
supervisory stress test that is not related to a recalculation in
which the firm participates occurred within the same calendar year
or in consecutive years.
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Two commenters requested that the Board provide a quantitative
definition of a material change. These commenters also requested that
the deadline to resubmit capital plans be extended from 30 to 90 days
following a material change. The same commenters asked that the Board
eliminate the requirement for prior Federal Reserve approval for
capital distributions following a material change. These commenters
also recommended that the Board not suspend results averaging when
determining a firm's stress capital buffer requirement after a material
change, pointing to potential long delays before a transaction
resulting in a material change determination is reflected in the data
used in two consecutive supervisory stress tests. One commenter
suggested that in the event of a material change, a firm should only
require prior approval for a capital distribution if the firm falls
below the payout restrictions. Another commenter recommended that the
Board not require any resubmission for any acquisition subject to an
application or notice requiring prior approval under the Bank Holding
Company Act. One commenter asserted that eliminating the Board's
authority to require capital plan submissions in response to changing
market conditions would represent a major overhaul of the stress
testing framework and therefore require a separate proposal with its
own public comment process.
Consistent with the proposal, under the final rule, the Board will
generally not use results averaging when recalculating a firm's stress
capital buffer requirement because of a material change. Results
averaging will resume, as applicable, for the subsequent stress capital
buffer requirement calculation if such calculation is not a
recalculation resulting from a material change.\38\ The Board
considered the comments that argued in favor of using results averaging
even in the event of a material change. However, results averaging that
partially includes a firm's balance sheet prior to a material change
may misrepresent the firm's risk level when recalculating its stress
capital buffer requirement, because a material change may significantly
impact the firm's business profile, risk exposure, and balance sheet.
Accordingly, the final rule maintains the risk sensitivity of the
stress capital buffer requirement by not averaging when recalculating a
firm's stress capital buffer requirement due to a material change.
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\38\ The Final Rule includes certain technical changes from the
proposal to make clear that the Board will use averaging for a firm
subject to Category IV standards when subject to a recalculated
stress capital buffer requirement if the recalculation and a
subsequent annual supervisory stress test in which the firm
participates occur within the same calendar year or in consecutive
years. See 12 CFR 225.8(f)(2)(i) and (ii); 12 CFR 238.170(f)(2)(i)
and (ii). These changes are consistent with the way the calculation
was described in the proposal. See 90 FR 16843 at 16849 (April 22,
2025).
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The Board is also clarifying that, under the proposal, results
averaging would not have been suspended with respect to the calculation
of a firm's stress capital buffer in circumstances other than a
recalculation, including when a firm has resubmitted its capital plan
and the Board has not yet decided whether to recalculate its stress
capital buffer requirement. Those aspects of the proposal are retained
in the final rule.
5. Stress Testing Policy Statement
Under the proposal, the Board would have revised its Stress Testing
Policy Statement to no longer specify that highly material model
changes be phased in over a two-year period. Under the Stress Testing
Policy Statement, the Board phases in highly material supervisory
stress test model changes over a two-year period to mitigate sudden and
unexpected changes to the supervisory stress test results.\39\ Because
the proposal introduced results averaging over a two-year period,
material model changes would have, in most cases, been mechanically
phased in to the proposed calculation of the stress capital decline
component.
---------------------------------------------------------------------------
\39\ See 12 CFR part 252 Appendix B, section 2.3.
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One commenter suggested that the Board maintain the phase-in of
highly material supervisory model changes, contending that material
changes to a firm's stress capital buffer from model changes do not
reflect actual portfolio risk. Another commenter argued that the Board
should maintain the phase-in of highly material model changes
specifically for Category IV firms to reduce volatility in the stress
capital buffer requirements for those firms, as these firms would
generally not receive stress capital buffer requirements based on
results averaging.
Some commenters provided other general input on the Stress Testing
Policy Statement. Two commenters provided suggestions to modify the
assumption that the size of a firm's balance sheet remains constant
over the stress period, as described in the Stress Testing Policy
Statement. One commenter provided additional quantitative analysis
asserting that this assumption is not reflective of credit card loan
balance behavior. Another commenter recommended that the Board put out
the entire Stress Testing Policy Statement for public comment.\40\
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\40\ The Board previously invited comment on a proposal to adopt
the Stress Testing Policy Statement in 2017, and the statement was
published as part of a final rule in 2019. See 82 FR 59528 (December
15, 2017) and 84 FR 6664 (February 28, 2019).
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Consistent with the proposal, the final rule revises the Board's
Stress Testing Policy Statement to remove the phase-in of highly
material supervisory stress test model changes over a two-year period.
Results averaging automatically applies a phase-in of material model
changes, removing many of the benefits received from a concurrent
phase-in of model changes. Although the removal of the phase-in could
potentially result in slightly higher volatility for firms subject to
Category IV standards in certain years when a model change is
incorporated,\41\ the final rule eliminates
[[Page 62642]]
the phase-in for all firms to reduce complexity and ensure consistent
models for all firms subject to the stress test.
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\41\ Under the final rule, the effects of a material model
change would be fully incorporated into a firm's stress capital
buffer requirement if the firm receives a new stress capital buffer
requirement that is not calculated using results averaging in a year
when a material model change is implemented (that is, a stress
capital buffer requirement that is not calculated using results
averaging would incorporate the full effects of the model change
because those effects would not be phased in over two supervisory
stress testing cycles as they are under the current rule.)
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Additionally, as part of the separate enhanced transparency and
public accountability final rule, the Board is adopting a process to
seek public input on material model changes prior to their use in the
stress test.\42\ The threshold for a material model change is lower
than the threshold for a highly material model change. Given this
process, the phase-in of highly material model changes is less
important because firms will have an opportunity to provide input on
material model changes before they are implemented. To ensure that the
stress capital buffer requirements based on 2027 stress test results
are calculated only using models informed by public input, the Board
determined to remove the phase-in of highly material model changes
prior to the 2027 stress test.
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\42\ The definition of ``material'' model changes in the
enhanced transparency and public accountability proposal for the
purpose of seeking public input is different from the Stress Testing
Policy Statement's definition of ``highly material'' model changes
for the purpose of the phase-in of these model changes. See 90 FR
51856 (Nov. 18, 2025), available at <a href="https://www.federalregister.gov/d/2025-20211">https://www.federalregister.gov/d/2025-20211</a>.
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The Board is maintaining the assumption in the Stress Testing
Policy Statement that aggregate credit supply does not contract during
the stress test horizon period.
6. Supervisory Stress Testing Models and Scenarios
The proposal invited comment on ways for the Board to improve the
transparency and effectiveness of the supervisory stress test and its
planned approach to seek comment on the supervisory stress test models
and scenarios. Several commenters cited specific concerns with the
global market shock component, large counterparty default component,
credit and loan loss models, operational loss models, and PPNR models
in the supervisory stress test.\43\ Another commenter suggested an
alternative methodology to calculate the collateral haircut approach
for repo-style transactions under the standardized approach for risk-
weighted assets and in the supervisory stress test. Another commenter
said that the stress capital buffer framework in general is not
sufficiently strong or stringent.
---------------------------------------------------------------------------
\43\ One commenter recommended specific changes to the modeling
of non-interest expenses, including adding more granular sub-
categories, such as marketing expenses, and adjusting the modeling
of these specific sub-categories.
---------------------------------------------------------------------------
One commenter suggested that the Board expand the supervisory
stress test to include additional scenarios that include more severe
assumptions. The commenter also advocated that the Board include a
qualitative objection process to the supervisory stress test. Another
commenter recommended an earlier release of the annual supervisory
stress test scenarios as well as defined parameters for all components
of the annual scenarios. One commenter recommended a streamlined stress
capital buffer requirement reconsideration process, including defined
acceptable documentation to ensure consistent and transparent reviews.
Two commenters suggested changes to stress test model overlays,
including that the Board provide an explanation to firms when applying
an overlay.\44\ One commenter recommended giving firms an opportunity
to appeal overlays, and the commenter also suggested that the Board
issue for comment a rule that establishes the criteria for overlays and
outlines the process by which they are applied. These comments are
addressed by the enhanced transparency and public accountability final
rule and associated documentation.
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\44\ Adjustments to supervisory stress test models are regularly
described in the annual Federal Reserve Stress Test Results
disclosure. For example, see Box 1 in Board of Governors of the
Federal Reserve System, 2025 Federal Reserve Stress Test Results
(June 2025), <a href="https://www.federalreserve.gov/publications/files/2025-dfast-results-20250627.pdf">https://www.federalreserve.gov/publications/files/2025-dfast-results-20250627.pdf</a>.
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7. Interaction With Other Regulatory Capital Frameworks
Several commenters expressed concern about potential overlaps and
incongruity between the supervisory stress testing framework and the
2023 Basel III proposal,\45\ which could lead to inappropriate
calibration of capital requirements. Some commenters cited concerns
with the holistic calibration and potential structural overlaps
attributed to the operational risk capital requirements and the market
risk capital requirements between the supervisory stress testing
framework and the Basel III proposal. One commenter requested that the
Board commit to not applying the stress capital buffer requirement to
the capital requirements framework that would be associated with the
potential adoption of the Basel III proposal. Some commenters suggested
removing the stress capital buffer floor of 2.5 percent. Another
commenter recommended the Board introduce a post-stress leverage ratio
measurement and leverage ratio buffer to the supervisory stress test
framework. One commenter stated that the impact analysis of the
proposal did not appropriately take into account how other outstanding
proposals on regulatory capital for large firms interacted with the
proposed rule on the calculation of the stress capital buffer
requirement. Several commenters urged the Board to broadly revise the
supervisory stress testing framework, arguing that it is conceptually
inconsistent with the risk-weighted assets framework.
---------------------------------------------------------------------------
\45\ See 88 FR 64028 (Sept. 18, 2023).
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The Board has carefully reviewed the comments regarding
interactions within its regulatory capital framework. Several
rulemakings have progressed or changed since the proposal was published
in April 2025, including the stress testing enhanced transparency and
public accountability proposal \46\ and the 2026 Basel III and
standardized approach risk-based capital proposal.\47\ Combined, these
proposals aim to improve the risk sensitivity of requirements in a way
that considers the cumulative effect of the entire capital framework.
While the Board acknowledges there are interactions between minimum
capital requirements, the stress capital buffer framework, and the GSIB
surcharge requirement, the volatility final rule does not address these
interactions, as the primary objective of the proposal is to reduce the
volatility of the stress capital buffer requirement. The Board will
further evaluate interactions within the regulatory capital framework
in the context of rulemakings addressing stress testing, minimum
capital requirements, and the GSIB surcharge requirement and will seek
to mitigate any potential redundancies.
---------------------------------------------------------------------------
\46\ See 90 FR 51856 (Nov. 18, 2025), available at <a href="https://www.federalregister.gov/d/2025-20211">https://www.federalregister.gov/d/2025-20211</a>.
\47\ See Board, Press Release (Mar. 19, 2026), <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20260319a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20260319a.htm</a>.
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C. Changes to the Annual Effective Date of the Stress Capital Buffer
Requirement
Under the proposal, the annual effective date of the stress capital
buffer requirement would have been extended by one quarter for all
firms subject to the stress capital buffer requirement. Specifically,
the effective date of a firm's updated stress capital buffer
requirement would have been moved to January 1 of the year immediately
following the calendar year in which the capital plan was submitted,
which represents an extension of one quarter from the current effective
date of October 1. This revision would help to alleviate the challenges
that firms can face due to large and unexpected changes in capital
requirements by providing firms with additional time to comply with
updated stress capital buffer requirements. The Board is
[[Page 62643]]
addressing additional changes to the stress test and stress capital
buffer requirement timelines in a separate rulemaking.
Commenters generally supported moving the annual effective date to
January 1, noting that it would help firms optimize management buffers
and better conduct end-of-year capital planning. One commenter asserted
that moving the effective date to January 1 would create alignment with
the annual GSIB surcharge requirement effective date for applicable
firms, reducing the volatility and number of annual changes to
regulatory capital requirements. By contrast, one commenter argued that
the implementation date should remain October 1 in the year which the
stress test is conducted to maximize the risk sensitivity of the stress
capital buffer requirement.
Consistent with the proposal, the final rule extends the annual
effective date of the stress capital buffer requirement by one quarter
from October 1 to January 1. Providing an additional three months for a
firm to meet an updated stress capital buffer requirement will increase
a firm's ability to make any adjustments to its capital planning and,
as necessary, increase retain earnings to comply with a new
requirement. In combination with results averaging, extending the
effective date would help to alleviate the impact of large changes in
stress capital buffer requirements.
D. Changes to the FR Y-14 Reporting Forms
Under the proposal, the FR Y-14A/Q/M reports would have been
extended for three years and modified to collect additional information
on a firm's PPNR, which would improve the calculation of a firm's
stress capital buffer requirement. Specifically, the proposed revisions
would have collected: (1) more granular data on compensation expenses
and (2) information on non-recurring expenses. The proposed revisions
would have been effective for the December 31, 2025, report date.
The FR Y-14Q, Schedule G (PPNR) does not currently segment the
portion of total compensation that is variable in a firm's business. To
ensure the supervisory stress test more accurately reflects a firm's
compensation structure, the proposal would have added two new items
related to wealth management (WM) and financial advisory (FA)
activities, along with compensable revenues and commissions on
compensable revenues to Schedule G (items 28.F (Compensable Revenues)
and 28.G (Commissions from WM or FA activities)). The proposal would
also have added corresponding revisions to the FR Y-14A, Schedule A.7.a
(PPNR Projections).
Currently, the FR Y-14A/Q/M reports also do not adequately isolate
expenses that are known to be non-recurring, one-time events. To
systematically identify non-recurring expenses related to business
divestitures and the write-down of consolidated investment entities,
the proposal would have revised the instructions for FR Y-14Q, Schedule
G.3 (PPNR Metrics), item 47 (Non-recurring PPNR items) to better
capture these expenses.
The proposed revisions also would have removed items that were no
longer needed to conduct the supervisory stress test, including
information on non-interest income from servicing activities, including
mortgage servicing rights (MSR). Specifically, the proposal would have
removed the following items from FR Y-14A, Schedule A.7.a (PPNR
Projections Sub-schedule) and FR Y-14Q, Schedule G.1 (PPNR Submission
Worksheet):
<bullet> Item 14.J (Servicing & Ancillary Fees);
<bullet> Item 14.K (MSR Amortization);
<bullet> Item 14.L (MSR Value Changes due to Changes in
Assumptions/Model Inputs/Other Net of Hedge Performance); and
<bullet> Item 14.M (Other).
The proposal also would have revised the instructions for item 14.I
(Servicing) on Schedule A.7.a and Schedule G.1 so that the instructions
clearly indicate that all non-interest income related to servicing
activities should be reported in item 14.I.
These revisions were proposed to strengthen the risk sensitivity of
the supervisory stress test and improve the accuracy of the stress
capital buffer requirement calculation. The revisions also would have
reduced regulatory reporting burden.
Commenters generally supported the proposed revisions to the FR Y-
14A/Q/M reports. One commenter recommended additional clarifications to
the line items in the proposed revisions. Another commenter recommended
that the Board release more information about how it uses data gathered
via the reporting forms to allow for more informed public feedback.
Other commenters suggested additional enhancements and ways to
streamline the regulatory reports. One commenter recommended that the
FR Y-14A/Q/M forms be consolidated into a single, standardized
reporting template with a dedicated glossary with term definitions. Two
commenters recommended further elimination of data elements not used
for the supervisory stress test.\48\ Two commenters suggested that the
reports be aligned with other regulatory reporting forms where
practicable, including when changes are made to reports, and that the
Board should remove redundant reporting items. One commenter also
suggested that the Board provide additional notice ahead of changes to
forms and instructions. Another commenter suggested aligning certain
items in the FR Y-14A/Q/M reports with U.S. generally accepted
accounting principles. This commenter also recommended that the Board
establish thresholds to determine the materiality of errors in FR Y-
14A/Q/M fields and reflect in instructions that immaterial errors will
not be viewed as defects in reporting. The same commenter suggested
reducing information currently collected monthly on the FR Y-14M to
quarterly. Several commenters made specific suggested changes to line
items in the FR Y-14A/Q/M forms.
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\48\ As an example, one of these commenters discussed the
requirement to report information on loans and securities as of
their origination date and suggested that this information is not
relevant to the supervisory stress test.
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The Board has approved the extension of the FR Y-14A/Q/M reports
for three years, with revisions to collect additional information on
compensation expenses and non-recurring expenses. These revisions were
approved as proposed, except that, in response to a comment, the Board
modified a proposed FR Y-14Q instruction to refer to ``consolidated
variable interest entities,'' rather than ``consolidated investment
entities,'' in non-recurring PPNR items. The amended terminology is
more widely used and consistent with U.S. generally accepted accounting
principles and the FR Y-9C reports. These revisions are effective for
the June 30, 2027, report date.
Finally, the Board is not adopting the proposed removal of items
from FR Y-14Q, Schedule G.1 and FR Y-14A, Schedule A.7.a as certain of
these items would be used in the Proposed PPNR Model.\49\ Reducing
unnecessary regulatory reporting burden remains a goal, and the Board
will consider all relevant comments as it develops proposals for
further changes to streamline the FR Y-14A/Q/M reports. In particular,
the Board is reviewing the reports with the goal of eliminating items
that are no longer necessary to conduct the supervisory stress test.
However, the Board is not at this time adopting revisions to the FR Y-
14A/Q/
[[Page 62644]]
M reports other than those described here.
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\49\ The model documentation is available on the Board's website
at: <a href="https://www.federalreserve.gov/supervisionreg/dfa-stress-tests-2027.htm">https://www.federalreserve.gov/supervisionreg/dfa-stress-tests-2027.htm</a>.
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II. Economic Analysis
Consistent with the proposal, the final rule's changes to the
Board's supervisory stress testing framework aim to reduce the
volatility of capital requirements and provide more time for firms to
adjust capital plans in response to updated stress capital buffer
requirements. These measures would allow firms to streamline capital
planning while maintaining adequate capital to withstand economic
shocks. The Board evaluated the potential impacts of these changes on
the affected firms and the broader economy.\50\
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\50\ The Board is separately finalizing the enhanced
transparency and public accountability proposal to increase the
transparency and public accountability of the stress test. Sections
V and VII of that final rule's preamble include an estimate of the
impact from changes to stress test models and economic analysis of
the final rule, respectively. See enhanced transparency and public
accountability final rule, sections V and VII.
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The economic analysis is structured into five parts. The first
part, an overview of the baseline, describes the current state of
supervisory stress testing practices up until the effective date of
this final rule. The second part presents a discussion of the final
rule. The third part presents a discussion of alternatives to the
current approach. The fourth part presents estimated changes in the
level and volatility of capital requirements resulting from the revised
stress capital buffer calculation under the final rule and under
reasonable alternatives and provides a detailed discussion of potential
costs and benefits of the changes in the final rule.\51\ The fifth part
includes a detailed discussion of comments on the proposal related to
the economic analysis.
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\51\ For more information on the models and bank-provided data,
see Board of Governors of the Federal Reserve System, 2025
Supervisory Stress Test Methodology (June 2025), <a href="https://www.federalreserve.gov/publications/files/2025-june-supervisory-stress-test-methodology.pdf">https://www.federalreserve.gov/publications/files/2025-june-supervisory-stress-test-methodology.pdf</a>.
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A. Baseline Analysis
The current framework prior to the final rule (discussed in detail
in Section I of this SUPPLEMENTARY INFORMATION) serves as the baseline
for the economic analysis. The Board assessed the costs and benefits of
the final rule and other policy alternatives (discussed below in
Section II.C of this SUPPLEMENTARY INFORMATION) relative to this
baseline.
Under the current framework, a firm's stress capital buffer
requirement is determined based on the stress capital decline and the
dividend add-on components and is floored at 2.5 percent of risk-
weighted assets. As noted previously, firms subject to Category I-III
standards are subject to the supervisory stress test annually, while
firms subject to Category IV standards are subject to the supervisory
stress test on a two-year cycle, unless they choose, or are otherwise
required, to be subject to the annual supervisory stress test. A firm's
preliminary stress capital buffer requirement is set in June, and its
final stress capital buffer requirement generally becomes part of the
firm's ongoing capital requirement on October 1. As a result, firms
have approximately one quarter to comply with the updated stress
capital buffer requirement.
As discussed in Section I.A.i of this SUPPLEMENTARY INFORMATION, a
firm's stress capital buffer requirement can change from year to year
based on several factors. These factors include changes in the
composition of a firm's risk profile, economic conditions since the
previous stress test, the severely adverse scenario used in the
supervisory stress test, and the supervisory models used in the
supervisory stress test.
B. Final Rule versus Baseline
As discussed in detail in Section I of this SUPPLEMENTARY
INFORMATION, under the final rule, all the elements of the current
framework are maintained except that (1) for a firm participating in
two consecutive annual supervisory stress tests, the firm's final
stress capital buffer requirement is informed by both the current and
prior year's supervisory stress test results; and (2) all firms subject
to the stress buffer capital requirements have until January 1, instead
of October 1, to meet their new stress capital buffer requirements.
Under the final rule, for a firm participating in two consecutive
annual supervisory stress tests, the firm's stress capital buffer
requirement is set using the average of the stress capital decline
components from the current and previous year. The stress capital
buffer requirement continues to be based on the most recent stress test
results for most firms subject to Category IV standards, which are
generally required to participate in the supervisory stress tests every
other year. Moreover, regardless of its category, a firm has two
quarters to comply with changes in the stress capital buffer
requirement, compared to one quarter under the current framework.
C. Reasonable Alternatives
The Board has identified several alternatives to the final rule
that could help reduce volatility of stress capital buffer requirements
while maintaining the benefits of the stress capital buffer
requirement. These alternatives differ in (1) approach to averaging
stress capital buffer requirement levels and (2) timelines for
compliance. The following section discusses these alternatives and
explains how they differ from the baseline and the final rule.
Alternative 1: Current Framework With One-Quarter Delay
This alternative deviates from the baseline in that firms would
have until January 1, instead of October 1, to comply with stress
capital buffer requirements. It does not include results averaging. The
calculation of stress capital buffer requirements and the other parts
of the supervisory stress testing process otherwise remain the same as
the current approach.\52\
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\52\ Note that, under the current framework, the dividend add-on
component covers dividends issued from quarters four through seven
of the stress test planning horizon (four quarters in total). In
alternatives with a one-quarter delay, this component would shift to
cover quarters five through eight.
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Alternative 2: Current Framework With Two-Year Averaging
Under this alternative, all the elements of the current framework
are maintained except the alternative applies results averaging over
the current year and the previous year for firms participating in two
consecutive annual supervisory stress tests. For firms that participate
in the supervisory stress tests every other year, the stress capital
buffer requirement would be based on the most recent stress test
results. This alternative differs from the final rule in that the time
to comply with a new stress capital buffer requirement is not extended
by one quarter.
Alternative 3: Current Framework With Three-Year Averaging
Under this alternative, all elements of the current framework are
maintained except the alternative applies results averaging over the
previous three years. For a firm subject to annual supervisory stress
tests, this means that the stress capital buffer requirement in the
current year is based on the average of stress capital declines from
its three most recent stress tests. For a firm subject to Category IV
standards that undergoes supervisory stress tests every other year,
this means that in the year that the firm is subject to the supervisory
stress test, stress capital buffer requirements are based on the
average of stress capital declines in the most recent supervisory
stress test and the supervisory stress test that took place two years
prior. In the year that the firm is not subject to the supervisory
stress test, stress capital
[[Page 62645]]
buffer requirements are, in effect, solely based on the results from
the prior year's test because the calculation considers the average of
only one number. Under this alternative, if a firm does not participate
in the supervisory stress test, the stress capital decline for that
year is treated as a missing observation for the purposes of computing
the firm's stress capital buffer requirement. This alternative deviates
from results averaging under the final rule, which applies over a two-
year period. Additionally, under this alternative, stress capital
buffer requirements for firms subject to Category IV standards would
automatically incorporate some averaging, while under the final rule,
stress capital buffer requirements for these firms would generally not
incorporate results averaging.
Alternative 4: Current Framework With Asymmetric Two-Year Averaging
With One-Quarter Delay
Under this alternative, all the elements of the current framework
remain the same with two exceptions: (1) a firm would have until
January 1, instead of October 1, to comply with its stress capital
buffer requirement, and (2) for a firm participating in two consecutive
annual supervisory stress tests, the firm's final stress capital buffer
requirement is informed by the current year's as well as last year's
supervisory stress test results. If a firm's stress capital decline
component based on the current year's stress test is larger than the
projected decline from the prior year's stress test, then its stress
capital decline component would be based on the average of these two
results. However, if the stress capital decline component from the
current year's stress test is smaller than the decline in the prior
year's stress test, the firm's stress capital decline component would
be based on only the current year's supervisory stress test results.
For firms that participate in the supervisory stress tests every other
year, the stress capital decline component would be based on the most
recent stress test results. This alternative deviates from the final
rule, which applies the averaging of the stress capital decline
component on a symmetrical basis.
Alternative 5: Current Framework With Tailored Stress Test Averaging
With One-Quarter Delay
Under this alternative, all elements of the current framework are
maintained except that (1) a firm would have until January 1, instead
of October 1, to comply with its stress capital buffer requirement, and
(2) results averaging would be applied (a) over the previous two years
for firms participating in two consecutive annual supervisory stress
tests; and (b) up to three years for firms that are subject to the
supervisory stress test tests once every two years. For a firm
participating in two consecutive annual supervisory stress tests, this
means that the stress capital buffer requirement in the current year is
informed by the average of the stress capital decline components from
its two most recent stress tests. For a firm subject to Category IV
standards that undergoes supervisory stress tests every other year,
this means that in the year that a firm is subject to the supervisory
stress test, its stress capital buffer requirement is informed by the
average of the stress capital decline components in the most recent
supervisory stress test and in the supervisory stress test that took
place two years prior. In the year that the firm is not subject to the
supervisory stress test, its stress capital buffer requirement is
solely informed by the results from the prior year's test. This
alternative deviates from results averaging in the final rule and
Alternative 2, which applies over a two-year period for all firms. It
also deviates from results averaging under Alternative 3, which applies
over a three-year period for all firms.
D. Analysis of Benefits and Costs
This section provides an assessment of the benefits and costs of
the final rule and alternatives relative to the current framework. The
final rule and alternatives presented in the previous sections have
different benefits and costs that arise from their different
implications for the volatility of the stress capital buffer
requirement, its average level, its sensitivity to current risks, and
the timeliness of stress capital buffer requirement revisions.
1. Estimated Changes in Stress Capital Buffer Requirement Outcomes
Under the Final Rule and the Alternatives
The Board recalculated stress capital buffer requirements using
historical data to quantitatively describe what the stress capital
buffer requirement results would have been under the final rule and
each alternative. This analysis provides an understanding of how the
changes in the final rule would have affected capital requirements in
recent years. The results are presented in Table 1.
The analysis in Table 1 uses supervisory stress test results from
2018 to 2025.\53\ This data is used to project stress capital buffer
requirements under the final rule from 2020 to 2025 and compares them
to the actual stress capital buffer requirements over this period. The
sample does not include results from the 2026 supervisory stress test
because these results were not used to inform stress capital buffer
requirements.\54\ The analysis sample includes all firms that received
a stress capital buffer requirement in any given year, even if that
firm was not subject to the supervisory stress test in that year.
Results are presented as averages for each firm category and for the
entire sample. The table reports average stress capital buffer
requirements in percentage points, average year-over-year absolute
changes in firm-specific stress capital buffer requirement levels in
basis points, time to comply under each alternative in quarters, and
average data-to-implementation gap in months.
---------------------------------------------------------------------------
\53\ Available on Board of Governors of the Federal Reserve
System's website at <a href="http://www.federalreserve.gov/publications/dodd-frank-act-stress-test-publications.htm">http://www.federalreserve.gov/publications/dodd-frank-act-stress-test-publications.htm</a>. The 2018-2019 stress test
results have been adjusted to reflect the stress test assumption
changes finalized in the rule that established the stress capital
buffer requirement.
\54\ As noted above, in February 2026, the Board voted to
maintain the current stress capital buffer requirements until 2027,
when new requirements can be calculated based on models that take
public feedback into consideration. See Board, Press Release (Feb.
4, 2026), <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20260204a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20260204a.htm</a>.
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The analysis presented in Table 1 differs from the analysis
presented in the proposal because the analysis presented in the final
rule incorporates the preliminary results for the 2025 supervisory
stress test,\55\ as well as the revised results for the 2024
supervisory stress test.\56\
---------------------------------------------------------------------------
\55\ For the stress capital decline component, the final rule's
analysis uses 2025 stress test results as of June 27, 2025, when
results were published. For the dividend add-on component, the
analysis uses planned capital actions as of July 1, 2025. These
components are considered preliminary because they could change if
the Board were to reconsider results for any firms following the
reconsideration request process. A firm may request reconsideration
of its preliminary stress capital buffer requirement within fifteen
calendar days of receipt of notice of a preliminary stress capital
buffer requirement.
\56\ On June 27, 2025, the Board released corrected 2024 stress
test results and capital requirements stemming from modest errors in
the loss projections for corporate and first-lien mortgage loans.
These corrections did not change the aggregate post-stress capital
decline in 2024. For a comprehensive list of revisions, see <a href="https://www.federalreserve.gov/publications/files/2024-dfast-results-20240626.pdf">https://www.federalreserve.gov/publications/files/2024-dfast-results-20240626.pdf</a>.
[[Page 62646]]
Table 1--Estimated Stress Capital Buffer Requirement Outcomes Under Baseline, Final Rule, and Alternatives
----------------------------------------------------------------------------------------------------------------
Average
absolute
Average stress stress capital Average data-to-
capital buffer buffer Time to comply implementation
requirement requirement (quarters) gap (months)
(percent) year-over-year
change (bps)
----------------------------------------------------------------------------------------------------------------
Baseline: Current Framework
----------------------------------------------------------------------------------------------------------------
Category I.................................... 3.61 46 1 9
Category II-III............................... 4.44 98 .............. 9
Category IV................................... 3.40 45 .............. 15
Average....................................... 3.83 64 .............. 11
----------------------------------------------------------------------------------------------------------------
Final Rule: One-quarter Delay and Two-year Averaging
----------------------------------------------------------------------------------------------------------------
Category I.................................... 3.66 23 2 18
Category II-III............................... 4.34 73 .............. 18
Category IV................................... 3.39 36 .............. 18
Average....................................... 3.80 47 .............. 18
----------------------------------------------------------------------------------------------------------------
Alternative 1: One-quarter Delay, No Results Averaging
----------------------------------------------------------------------------------------------------------------
Category I.................................... 3.61 47 2 12
Category II-III............................... 4.40 94 .............. 12
Category IV................................... 3.36 43 .............. 18
Average....................................... 3.80 63 .............. 14
----------------------------------------------------------------------------------------------------------------
Alternative 2: Two-year Averaging, No Delayed Effective Date
----------------------------------------------------------------------------------------------------------------
Category I.................................... 3.65 23 1 15
Category II-III............................... 4.38 76 .............. 15
Category IV................................... 3.43 38 .............. 15
Average....................................... 3.83 48 .............. 15
----------------------------------------------------------------------------------------------------------------
Alternative 3: Three-year Averaging, No Delayed Effective Date
----------------------------------------------------------------------------------------------------------------
Category I.................................... 3.70 24 1 21
Category II-III............................... 4.24 51 .............. 21
Category IV................................... 3.34 38 .............. 21
Average....................................... 3.75 39 .............. 21
----------------------------------------------------------------------------------------------------------------
Alternative 4: Asymmetric Two-year Averaging, One-quarter Delay
----------------------------------------------------------------------------------------------------------------
Category I.................................... 3.53 35 2 18
Category II-III............................... 4.15 72 .............. 18
Category IV................................... 3.34 38 .............. 18
Average....................................... 3.68 49 .............. 18
----------------------------------------------------------------------------------------------------------------
Alternative 5: Tailored Stress Test Averaging, No Delayed Effective Date
----------------------------------------------------------------------------------------------------------------
Category I.................................... 3.65 23 2 18
Category II-III............................... 4.37 76 .............. 18
Category IV................................... 3.35 39 .............. 22
Average....................................... 3.79 48 .............. 20
----------------------------------------------------------------------------------------------------------------
Under the current framework and under alternatives that do not
require results averaging, a firm's stress capital buffer requirement
in a given year is calculated as the common equity tier 1 ratio decline
in the supervisory stress test plus the dividend add-on component for
that particular year,\57\ and is floored at 2.5 percent. The dividend
add-on component is calculated by summing four quarters of projected
common dividends and dividing that total by risk-weighted assets.
---------------------------------------------------------------------------
\57\ Firms' dividend plans impact the estimates of volatility of
the stress capital buffer requirement. If changes in firms planned
dividends move in opposite direction of the changes in stress test
results, reliance on historical observations of the dividend add-on
component could overstate volatility under results averaging.
---------------------------------------------------------------------------
Under results averaging, a firm's stress capital buffer requirement
for a given year is calculated as the average of the common equity tier
1 capital ratio declines observed in the supervisory stress tests of
the current and previous years plus the dividend add-on for that
particular year, with the result floored at 2.5 percent. Volatility is
measured as the absolute value of the year-on-year change in the stress
capital buffer requirement.
The average data-to-implementation gap is defined as the average
time elapsed between the date of the financial statements used for
stress capital buffer requirement calculations
[[Page 62647]]
and the effective date of those requirements. The supervisory stress
test results published in June primarily use financial data as of
December 31, with the resulting stress capital buffer requirement
becoming effective on October 1 of the same year. This process results
in a time lag of 9 months. In contrast, a two-year averaging regime
would incorporate financial statements from both the previous two year-
ends. This approach yields an average time lag of 15 months, calculated
as the mean of 9 months (for the most recent data) and 21 months (for
the older data). Further, extending the effective date by one quarter
would add 3 months to the data-to-implementation gap calculation. In
other words, the final rule, which involves two-year averaging and a
one-quarter delay, would yield an average data-to-implementation gap of
18 months, calculated as the mean of 12 months for most recent data and
24 months for the older data.
As expected, options with averaging tend to feature less volatility
in the stress capital buffer requirement, while options with delayed
effective dates provide firms more time to comply. Another observation
from this analysis is that the interaction of results averaging with
the 2.5 percent floor can lead to a small reduction in the overall
level of stress capital buffer requirements. Such a reduction can occur
when the requirement for a specific firm is at the 2.5 percent floor
one year and above the floor in another. This nonlinear effect impacts
a firm if its stress capital buffer requirement fluctuates around the
2.5 percent floor instead of being consistently above or equal to the
floor.\58\
---------------------------------------------------------------------------
\58\ The nonlinear effect reflects a mathematical result known
as Jensen's inequality, which states that for a convex function, the
function evaluated at the average of two or more values is less than
or equal to the average of the function evaluated at those same
values.
---------------------------------------------------------------------------
2. Cost-Benefit Analysis of Final Rule Relative to Baseline
As shown in Table 1, the final rule reduces year-over-year changes
in a firm's stress capital buffer requirement from an average of 64
basis points under the current framework to 47 basis points (a decline
of about 27 percent). The final rule generally maintains the current
average level of the stress capital buffer requirement. Under the final
rule, the average stress capital buffer requirement is 3.80 percentage
points, slightly lower than the average under the current framework
(3.83). The addition of the 2025 stress capital decline components
results in a larger reduction in the volatility of stress capital
buffer requirements than was shown in the proposal's economic
analysis.\59\ Firms' estimated time to comply with the stress capital
buffer requirement is one quarter more than under the current
framework, and the average data-to-implementation gap increases by
seven months.
---------------------------------------------------------------------------
\59\ Without 2025 data and revised 2024 data, the proposal would
have reduced year-over-year changes in firms' stress capital buffer
requirements from an average of 65 basis points to 54 basis points
(a change of about 17 percent). See 90 FR 16843 (April 22, 2025).
Table 1, Estimated Stress Capital Buffer Requirement Outcomes Under
Baseline, Proposal and Alternatives. pg., 16853.
---------------------------------------------------------------------------
Costs
The primary concern with this approach is the slower responsiveness
of stress capital buffer requirements to changes in firm risk profiles
and economic conditions. Averaging results over two years and
incorporating a longer gap between the estimation of stress capital
buffer requirements and their effective dates can result in a less
timely requirement.
The final rule's results averaging has an uneven impact across firm
categories. While results averaging meaningfully reduces the volatility
of the stress capital buffer requirements for firms subject to annual
supervisory stress tests (as shown in Table 1), it offers minimal
reduction in volatility to firms subject to biennial supervisory stress
tests. These firms face less volatility than firms subject to
supervisory stress test on an annual basis as they are only subject to
supervisory stress test every other year. However, this difference does
not mean firms subject to Category IV standards do not benefit from the
final rule, as these firms can choose to be subject to results
averaging by participating in consecutive annual supervisory stress
tests. In addition, the one-quarter extension of the stress capital
buffer requirement's effective date in the final rule applies to firms
of all categories.
Benefits
The final rule provides more stable capital requirements for firms.
By smoothing the impact of annual fluctuations in supervisory stress
test results, firms may be able to develop more consistent long-term
capital strategies. This stability could potentially lead to more
sustainable lending and other financial intermediation practices and
reduce the effects that sudden changes in capital requirements could
have on firms and the U.S. economy. The final rule would also reduce
the likelihood of firms needing to take action to meet a sharp increase
in in stress capital buffer requirements.
Reduced volatility in capital requirements would mitigate the
likelihood of firms needing to raise external capital, reduce
dividends, and/or shrink balance sheets and the provision of banking
services in response to an unexpected and material increase in the
stress capital buffer requirement.
In addition, the extended timeline would further enable better
planning and decision-making by firms. With an additional three months,
firms can more thoroughly assess options for meeting new stress capital
buffer requirements, lessening the risk of a curtailment in credit
provisioning or other services. Moreover, firms would have additional
time to retain earnings and better prepare to manage large increases in
stress capital buffer requirements before turning to raising external
financing or changing their business activities. In the long run, this
extended compliance period could potentially lead to lower management
buffers as well. As a firm has more time to adjust and plan, it may
feel less pressure to maintain large discretionary buffers to deal with
stress capital buffer requirement uncertainty. The increased
predictability and reduced time pressure could allow firms to operate
with capital levels that more closely align with activities and risk
exposures, improving capital efficiency without meaningfully affecting
safety and soundness.
3. Cost-Benefit Analysis of Other Policy Alternatives
Alternative 1: Baseline With One-Quarter Delay, No Results Averaging
Alternative 1 maintains the benefits and costs associated with the
additional three months to meet changes in the stress capital buffer
requirement, as discussed above. However, merely postponing the
implementation date does not significantly alter the volatility of the
stress capital buffer requirement.\60\ An advantage of this alternative
relative to the final rule is, however, its simplicity. While
maintaining the current risk sensitivity of the stress capital buffer
requirement, this extension would benefit all firms subject to Category
I-IV standards without significantly altering the current regulatory
framework.
---------------------------------------------------------------------------
\60\ The slight differences in average levels and year-over-year
change values between Alternative 1 and the baseline are due to the
shift in the dividend add-on component coverage period, as mentioned
earlier. This shift results from the one-quarter delay in
implementation under Alternative 1.
---------------------------------------------------------------------------
Overall, while this alternative is expected to provide positive net
benefits
[[Page 62648]]
compared to the baseline, it offers smaller net benefits than the final
rule.
Alternative 2: Baseline With Two-Year Averaging, No Delayed Effective
Date
Alternative 2 maintains the benefits and costs associated with
reduced volatility, as discussed above. Reducing year-over-year
fluctuations in capital requirements enhances predictability and
stability for firms' capital planning. However, it does not include the
benefits and costs related to the added time to come into compliance
with changes to the stress capital requirement. Particularly, this
alternative offers minimal advantage to firms subject to biennial
supervisory stress tests. The final rule, on the other hand, applies
results averaging while granting an additional quarter to firms of all
categories. The benefit of this approach over the final rule is more
timeliness in the stress capital buffer requirement. Overall, while
this alternative is expected to provide positive net benefits compared
to the baseline, it offers smaller net benefits than the final rule.
Alternative 3: Three-Year Averaging, No Delayed Effective Date
As shown in Table 1, this alternative reduces year-over-year
changes in a firm's stress capital buffer requirement from an average
of 64 basis points under the baseline to 39 basis points (or about 39
percent), while yielding a modest decline in the aggregate level of the
stress capital buffer requirement, from an average of 3.83 percentage
points under the baseline to 3.75 percentage points. The time firms
have to comply with the new stress capital buffer requirement does not
change under this alternative relative to the baseline.
The main drawback of Alternative 3 is reduced timeliness and
sensitivity to current economic conditions and firm risk profiles. This
alternative leads to an even higher time gap due to averaging over a
longer time horizon, as shown by an average data-to-implementation gap
of 21 months. This difference may lead to a more pronounced disconnect
between regulatory requirements and the risks on firms' balance sheets,
potentially lowering the effectiveness of the capital adequacy
framework for firms.
This approach shares similar benefits as in the final rule and
Alternative 2 in that by averaging out the impact of annual
fluctuations in stress test results, firms can develop more consistent,
long-term capital planning strategies that potentially lead to more
sustainable lending practices and reduce the effects that sudden
changes in capital requirements might have on the broader economy.
Another benefit relative to the final rule and Alternative 2 is that
most firms subject to Category IV standards would benefit from an
additional reduction in the volatility of their stress capital buffer
requirements due to results averaging. In addition, the treatment of
firms subject to Category IV standards would be more consistent with
the approach for firms subject to Category I-III standards as all firms
would receive the benefits of results averaging.
Alternative 4: Asymmetric Two-Year Averaging With One-Quarter Delay
Alternative 4 maintains the benefits and costs associated with the
additional three months to meet changes in the stress capital buffer
requirement, as discussed above. It also maintains some of the benefits
and costs associated with reduced volatility. Table 1 in section D
shows that the average year-over-year volatility decreases from 64
basis points under the baseline to 49 basis points under this
alternative (a reduction of about 23 percent). This alternative lowers
the average stress capital buffer requirement levels relative to
historical values (a reduction from 3.83 percent under the baseline to
3.68 percent under this alternative). The latter result indicates that,
relative to the baseline and the final rule, averaging only when stress
capital declines in the supervisory stress tests are larger would lead
to a lower stress capital buffer requirement.
Further, the results in Table 1 demonstrate that this alternative
would not reduce stress capital buffer requirement volatility as much
as the final rule, which saw a reduction in volatility of about 27
percent. This difference can be attributed to two offsetting factors.
First, asymmetric averaging does not smooth out decreases, which
contribute to volatility. Thus, this factor increases volatility
relative to the final rule. However, the 2.5 percent floor becomes
binding more frequently under this alternative, which tends to reduce
volatility. The floor becomes binding more frequently because this
alternative lowers the average level of the stress capital buffer, as
explained above, making the floor more relevant.
Similar to the final rule, a cost of this alternative is slower
responsiveness of stress capital buffer requirements to changes in firm
risk profiles and economic conditions. Another cost of this alternative
is that applying averaging only when stress capital decline components
are steeper would lead to modestly lower stress capital buffer
requirements, on average. This could slightly reduce the safety and
soundness of covered firms.
An advantage of this method is its alignment with the asymmetric
costs firms face when adjusting their capital in response to changing
capital requirements. While responding to increases in capital
requirements can be costly and challenging for firms, especially over
short periods, firms typically find it easier and less costly to adjust
capital levels downward. This alternative acknowledges this asymmetry,
allowing for more rapid capital reductions when the stress capital
decline component is smaller, while providing more time for firms to
prepare against sudden, potentially disruptive increases in capital
requirements when the stress capital decline component is larger. As a
result, this alternative may offer a less expensive framework for firms
to manage their capital levels.
Alternative 5: Tailored Stress Test Averaging, No Delayed Effective
Date
As shown in Table 1, this alternative reduces year-over-year
changes in a firm's stress capital buffer requirement from an average
of 64 basis points under the baseline to 48 basis points (or about 25
percent), while yielding a modest decline in the aggregate level of the
stress capital buffer requirement, from an average of 3.83 percentage
points under the baseline to 3.79 percentage points.
Alternative 5 shares the general costs and benefits of alternatives
involving averaging. An additional benefit relative to the final rule
is that firms subject to Category IV standards, which face less
volatility in the current framework as they are only subject to
supervisory stress tests every other year, would benefit from a further
reduction in stress capital buffer requirement volatility. Moreover, an
advantage over the three-year averaging for all firms (Alternative 3)
is that this method extends averaging results up to three years only to
those firms subject to biennial supervisory stress tests. Consequently,
it has a significantly smaller overall average gap between data
collection and implementation.
The downside of this alternative relative to the final rule and
alternatives that are based on two-year averaging is that for most
firms subject to Category IV standards, this alternative would reduce
the ability for a timely adjustment of stress capital buffer
requirements in response to new risks or rapid shifts in the economic
landscape.
[[Page 62649]]
E. Comments Related to Economic Analysis
The Board received several comments related to the economic
analysis and the alternatives included in the proposal.
Several commenters argued in favor of one of the alternatives
presented in the proposal, while others suggested new potential
alternatives. As noted previously, several commenters argued that a
final rule should adopt an asymmetric averaging approach while other
commenters expressed opposition. The asymmetric averaging approach is
similar to Alternative 4 in this economic analysis, and its benefits
and costs are discussed in detail in the prior subsection.
Two commenters suggested a weighted averaging approach, which was
not included as an alternative for impact analysis in the proposal.
Under this alternative, a firm's stress capital buffer requirement
would be based on a weighted average of its stress capital decline
components from the current and previous years, with the current year
weighted more than the previous year. For example, one commenter
suggested a 60 percent weight for the current year and a 40 percent
weight for the previous year.\61\ For firms that participate in the
supervisory stress test every other year, the stress capital buffer
requirement would be based on the most recent supervisory stress test
results. This alternative differs from the final rule by using a
weighted average instead of an equal-weighted average. The suggested
60-40 weighting falls between the current practice (which assigns 100
percent weight to the current year's supervisory stress test results
and 0 percent to the previous year) and the final rule (which assigns
50 percent weight to each year). Under this alternative, the current
year's supervisory stress test results would have a larger impact than
the prior year's results on a firm's stress capital buffer requirement,
but not as large as under the current practice. Therefore, the changes
in the volatility of the stress capital buffer requirement under this
alternative would fall between those of the current practice and the
final rule, which are discussed previously in the economic analysis.
---------------------------------------------------------------------------
\61\ Another commenter supported the concept of a weighted
averaging approach but did not specify the percentages to apply to
each year's stress test results.
---------------------------------------------------------------------------
One advantage of this alternative method relative to the final rule
is its slightly higher risk sensitivity. By placing more weight on the
current year and less weight on the prior year, the alternative would
incorporate more current firm risks and macroeconomic conditions, as
measured by the most recent supervisory stress test. A cost of this
alternative would be its increased complexity, as a weighted average
could further complicate the interpretation of stress capital buffer
requirements, and its reduced impact on volatility.
One commenter expressed concern that results averaging could lead
to lower overall capital levels by incentivizing banks to reduce
management buffers, potentially increasing shareholder payouts through
share buybacks and dividends. The commenter suggested that recent
history shows banks tend to distribute capital to shareholders when
facing lower capital requirements, rather than allocating it to more
socially productive uses. It is important to clarify that the goal of
the rule is to reduce volatility in stress capital buffer requirements,
not to reduce their overall level. The analysis provided above
demonstrates that while the final rule reduces average year-over-year
changes in stress capital buffer requirements, it generally maintains
the average level of stress capital buffer requirements.
Some commenters expressed concern about the depth and timeliness of
the cost-benefit analysis provided in the proposed rule. These
commenters suggested that the analysis offers vague statements about
potential benefits and costs without providing detailed quantitative
analysis or a comprehensive comparison of these factors. Commenters
also noted that the proposed rule does not adequately describe how it
intersects with other related requirements, proposals, and upcoming
proposals, such as those concerning stress testing, Basel III
implementation, the GSIB surcharge requirement, and the enhanced
supplementary leverage ratio requirement. Commenters expressed concern
about the potential for incorrectly calibrated stress capital buffer
requirements due to the intersection with other capital requirements.
Another commenter recommended that the Board consider the overall
effect on bank capital levels as part of the economic analysis, rather
than just the impact on stress capital buffer requirements.
The economic analysis in the final rule focuses specifically on the
changes to the stress capital buffer requirement calculation method and
implementation timeline. The Board's approach involves using historical
data from the past five years of stress capital buffer requirements to
recalculate what the levels and volatility of capital would have been
if the final rule had been in place during this period. Importantly,
the Board does not assume any changes in scenarios, models, banks'
starting levels of capital and risk-weighted assets, or projected
values to estimate these effects. This approach allows for a clear
assessment of the final rule's potential impact based on historical
data, while maintaining consistency with existing methodologies and
assumptions. By isolating the effects of the specific modifications to
the stress capital buffer requirement, the Board provides a
straightforward comparison between the current framework and the
framework adopted in the final rule.
Other related requirements, proposals, and upcoming potential
proposals, such as those concerning supervisory stress testing, Basel
III implementation, the GSIB surcharge requirement, and the enhanced
supplementary leverage ratio requirement, may impact a firm's
sensitivity to risk or its starting financial condition or both.
Resulting changes to a firm's balance sheet or risk profile could alter
supervisory stress test outcomes. The final rule and the current rule
differ in how such changes in capital decline translate into the stress
capital buffer requirements. Under the final rule, it would take longer
for the stress capital buffer requirement to fully reflect any such
change due to results averaging. Conversely, under the current rule,
any change in capital decline would be fully reflected in the current
year's stress capital buffer requirement.
Therefore, the interaction between this rule and other capital
requirements primarily affects how the calculated stress capital
decline component translates into the final stress capital buffer
requirement, not how the stress capital decline component itself is
calculated. This distinction suggests that the above cost-benefit
analysis sufficiently and intuitively demonstrates how the impact of
any change in stress capital decline component would be comparable
under the final rule and current rule.
One commenter pointed out that the capital impact projections
included in the proposed rule may be outdated, given that the Federal
Reserve has since announced its 2025 supervisory stress test results.
The commenter suggested that the Board should provide updated analyses
and allow additional time for public comment based on this new
information. Regarding the timeliness of the data, the Board has
updated its analysis using the 2025 supervisory stress test data and
revised the calculations provided in the proposal. The multi-year
historical dataset helps account for variations across different
economic cycles and stress scenarios.
[[Page 62650]]
As described above, the Board did not include the 2026 supervisory
stress test data in its analysis, because the results of the 2026
stress test did not inform stress capital buffer requirements.\62\
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\62\ See Board, Press Release (Feb. 4, 2026), <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20260204a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20260204a.htm</a>.
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III. Administrative Law Matters
A. Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
(PRA) of 1995 (44 U.S.C. 3501-3521), the Board may not conduct or
sponsor, and the respondent is not required to respond to, an
information collection unless it displays a currently valid Office of
Management and Budget (OMB) control number. The Board reviewed the
information collections related to the final rule under the authority
delegated to the Board by OMB.
The final rule would not create any information collections subject
to the PRA; however, the Board revised the FR Y-14 reports to improve
supervisory stress test modeling and the calculation of stress capital
buffer requirements by enhancing the collection of information used to
assess a firm's risk profile. Specifically, the revisions implement
various changes that would isolate non-recurring expenses and increase
the granularity of data on compensation expenses. The Board received 7
public comments on the PRA for the FR Y-14, which are discussed in
detail above. The Board has adopted the revisions with amendments from
the proposal. Specifically, the Board amended the FR Y-14Q instructions
from the proposal to clarify the definition of one line item in
response to a comment and is not adopting the proposed removal of
certain FR Y-14 items.
Proposal Under OMB Delegated Authority To Extend for Three Years, With
Revision, the Following Information Collection
Collection title: Capital Assessments and Stress Testing Reports.
Collection identifier: FR Y-14A/Q/M.
OMB control number: 7100-0341.
General description of collection: This family of information
collections is composed of the following three reports:
<bullet> The annual FR Y-14A collects quantitative projections of
balance sheet, income, losses, and capital across a range of
macroeconomic scenarios and qualitative information on methodologies
used to develop internal projections of capital across scenarios.\63\
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\63\ In certain circumstances, a firm may be required to re-
submit its capital plan. See 12 CFR 225.8(e)(4); 12 CFR
238.170(e)(4). Firms that must re-submit their capital plan
generally also must provide a revised FR Y-14A in connection with
their resubmission.
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<bullet> The quarterly FR Y-14Q collects granular data on various
asset classes, including loans, securities, trading assets, and PPNR
for the reporting period.
<bullet> The monthly FR Y-14M is comprised of three retail
portfolio- and loan-level schedules, and one detailed address-matching
schedule to supplement two of the portfolio- and loan-level schedules.
The data collected through the FR Y-14A/Q/M reports (FR Y-14
reports) provide the Board with the information needed to help ensure
that large firms have strong, firm-wide risk measurement and management
processes supporting their internal assessments of capital adequacy and
that their capital resources are sufficient, given their business
focus, activities, and resulting risk exposures. The data within the
reports are used in connection with setting firms' stress capital
buffer requirements. The data are also used to support other Board
supervisory efforts aimed at enhancing the continued viability of large
firms, including continuous monitoring of firms' planning and
management of liquidity and funding resources, as well as regular
assessments of credit risk, market risk, and operational risk, and
associated risk management practices. Information gathered in this
collection is also used in the supervision and regulation of respondent
financial institutions. Respondent firms are currently required to
complete and submit up to 17 filings each year: one annual FR Y-14A
filing, four quarterly FR Y-14Q filings, and 12 monthly FR Y-14M
filings.\64\ Compliance with the information collection is mandatory.
---------------------------------------------------------------------------
\64\ Holding companies that do not meet the materiality
thresholds described in the instructions for the FR Y-14M are not
required to file that report. This results in some holding companies
submitting less than 17 filings each year.
---------------------------------------------------------------------------
Current Actions: The final rule modifies the FR Y-14A/Q/M reports
in order to collect additional information on a firm's pre-provision
net revenue, which will improve the calculation of the firm's stress
capital buffer requirement. Specifically, the revisions collect (1)
more granular data on compensation expenses, and (2) information on
non- recurring expenses. All revisions are effective for the June 30,
2027, report date.
Compensation Expenses
Total compensation expense is composed of salaries, variable pay,
and employee benefits. The compensation structure for certain business
lines, including financial advisors in a firm's wealth management
business, is generally determined as a ratio of compensable revenue,
which is a portion of total revenue attributable to the financial
advisor. As a result, the key driver of compensation change is the
amount of compensable revenue generated. During a period of economic
stress, this form of variable pay may decline quickly. This differs
from fixed compensation expenses, such as salaries, which tend to be
more stable during periods of stress because a firm may take time to
assess the severity of the downturn before determining if reductions
are appropriate.
FR Y-14Q, Schedule G (PPNR) does not currently segment the portion
of total compensation that is variable in a firm's business. Therefore,
the supervisory stress test may not adequately consider the role of
variable compensation or the correlation between compensation and
compensable revenue. To ensure that the supervisory stress test results
reflect this compensation structure, the Board is adding two new items
to Schedule G (items 28.F (Compensable Revenues) and 28.G (Commissions
from WM or FA activities)) to capture data on compensable revenues and
commissions on the compensable revenues. For consistency between the FR
Y-14Q and the FR Y-14A, the Board also made corresponding revisions to
FR Y-14A, Schedule A.7.a (PPNR Projections).
Non-Recurring Expenses
Non-recurring expenses are extraordinary or one-time expenses that
are not expected to occur in the future. These expenses are distinct
from recurring expenses which occur on a regular basis. The FR Y-14
reports do not currently adequately isolate expenses that are known to
be due to one-time events.
As non-recurring expenses are not expected to repeat in the future,
it may be appropriate to mitigate the influence of these expenses when
calculating a firm's stress capital buffer requirement. To
systematically identify non-recurring expenses related to business
divestitures and the write-down of consolidated investment entities,
the Board is revising the instructions for FR Y-14Q, Schedule G.3 (PPNR
Metrics), item 47 (Non-recurring PPNR items) to better capture these
expenses. Capturing data on these non-recurring expenses would
strengthen the risk sensitivity of the supervisory stress test since
the Board would have a more comprehensive
[[Page 62651]]
picture of a firm's expenses and net income.
Non-Interest Income From Servicing Activities
The Board also proposed to remove several items that capture
information related to non-interest income from servicing activities.
Specifically, the Board proposed to remove the following items from FR
Y-14A, Schedule A.7.a (PPNR Projections Sub-schedule) and FR Y-14Q,
Schedule G.1 (PPNR Submission Worksheet):
<bullet> Item 14.J (Servicing & Ancillary Fees);
<bullet> Item 14.K (MSR Amortization);
<bullet> Item 14.L (MSR Value Changes due to Changes in
Assumptions/Model Inputs/Other Net of Hedge Performance); and
<bullet> Item 14.M (Other).
However, since the proposal, these items have been incorporated
into the PPNR model proposed to be used in the 2027 stress test.
Therefore, the Board is not adopting the proposed revision to remove
these items from Schedule G.1 and Schedule A.7.a as they continue to be
necessary to conduct the supervisory stress test.
Frequency: Annually, quarterly, and monthly.
Respondents: Holding companies with $100 billion or more in total
consolidated assets, as based on (1) the average of the firm's total
consolidated assets in the four most recent quarters as reported
quarterly on the firm's Consolidated Financial Statements for Holding
Companies (FR Y-9C; OMB No. 7100-0128) or (2) the average of the firm's
total consolidated assets in the most recent consecutive quarters as
reported quarterly on the firm's FR Y-9Cs, if the firm has not filed an
FR Y-9C for each of the most recent four quarters.
Total estimated number of respondents: 35.
Total estimated change in burden: 0.
Total estimated annual burden hours: 760,428.\65\
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\65\ On May 20, 2026, the Board adopted revisions to the FR Y-14
reports (see 91 FR 29485), which impacted estimated FR Y-14 burden
hours. As a result, this burden estimate differs from the proposal
to reflect the new baseline estimate of FR Y-14 burden hours.
---------------------------------------------------------------------------
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires that, in
connection with a final rulemaking, an agency prepare and make
available for public comment a final regulatory flexibility analysis
describing the impact of the final rule on small entities.\66\ However,
a final regulatory flexibility analysis is not required if the agency
certifies that the final rule will not have a significant economic
impact on a substantial number of small entities. Under regulations
issued by the U.S. Small Business Administration (SBA), a small entity
includes a depository institution, bank holding company, or savings and
loan holding company with total assets of $850 million or less.\67\ For
the reasons described below and under section 605(b) of the RFA, the
Board certifies that the final rule will not have a significant
economic impact on a substantial number of small entities.
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\66\ 5 U.S.C. 601 et. seq.
\67\ See 13 CFR 121.201. Consistent with the SBA's General
Principles of Affiliation, the Board includes the assets of all
domestic and foreign affiliates toward the applicable size threshold
when determining whether to classify a particular entity as a small
entity. See 13 CFR 121.103. As of December 31, 2025, there were
approximately 2,395 small bank holding companies, approximately 116
small savings and loan holding companies, and approximately 441
small state member banks.
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In connection with the proposed rule, the Board stated that it did
not believe the proposed rule would have a significant economic impact
on a substantial number of small entities. Nevertheless, the Board
published and invited comment on an initial regulatory flexibility
analysis of the proposed rule. No comments were received on the initial
regulatory flexibility analysis.
The Board is finalizing amendments to Regulations Y,\68\ LL,\69\
and YY \70\ that would affect the regulatory requirements that apply to
bank holding companies, U.S. intermediate holding companies of foreign
banking organizations, and savings and loan holding companies, each
with at least $100 billion in total consolidated assets, as well as
certain nonbank financial companies supervised by the Board and any
other bank holding company or covered savings and loan holding company
domiciled in the United States that is made subject to the capital plan
rule \71\ by order of the Board.\72\ The reasons and justification for,
and economic impacts of, the final rule are described above in more
detail in this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------
\68\ 12 CFR part 225.
\69\ 12 CFR part 238.
\70\ 12 CFR part 252.
\71\ 12 CFR 225.8; 12 CFR 238.170.
\72\ There currently are no entities with less than $100 billion
in total consolidated assets subject to the capital plan rule.
---------------------------------------------------------------------------
The Board has considered whether to conduct a final regulatory
flexibility analysis in connection with this final rule. However, the
assets of entities subject to this final rule substantially exceed the
$850 million asset threshold under which a banking organization is
considered a ``small entity'' under SBA regulations. Because the final
rule is not likely to apply to any entity with assets of $850 million
or less, it is not expected to apply to any small entity for purposes
of the RFA. The Board does not believe that the final rule duplicates,
overlaps, or conflicts with any other Federal rules. In light of the
foregoing, the Board certifies that the final rule will not have a
significant economic impact on a substantial number of small entities.
C. Plain Language
Section 722(a) of the Gram-Leach-Bliley Act (12 U.S.C. 4809(a))
requires the Board to use plain language in its proposed and final
rulemakings. In the proposal, the Board invited but did not receive
comments on its use of plain language. In the final rule, the Board
uses plain language.
List of Subjects
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 238
Administrative practice and procedure, Banks, banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 252
Administrative practice and procedure, Banks, Banking, Capital
planning, Federal Reserve System, Holding companies, Reporting and
recordkeeping requirements, Securities, Stress testing.
Authority and Issuance
For the reasons stated in the preamble, the Board of Governors of
the Federal Reserve System amends 12 CFR chapter II as follows:
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
0
1. The authority citation for part 225 continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1,
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906,
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801, and 6805.
Subpart A--General Provisions
0
2. In Sec. 225.8:
[[Page 62652]]
0
a. Redesignate paragraphs (d)(20) through (21) as (d)(21) through (22),
respectively;
0
b. Add new paragraph (d)(20);
0
c. Revise paragraph (f);
0
d. In paragraph (h)(2)(ii), remove the text ``fourth through seventh'',
wherever it appears and add, in its place the text ``fifth through
eighth'';
0
e. Revise paragraph (h)(4)(ii)(A);
0
f. Revise paragraph (i)(1) and (i)(3)(i); and
0
g. Remove the text ``fourth'', and add, in its place the text ``fifth''
in paragraph (k)(2).
The revisions and addition read as follows:
Sec. 225.8 Capital planning and stress capital buffer requirement.
* * * * *
(d) * * *
(20) Stress capital decline means the ratio of a bank holding
company's common equity tier 1 capital to risk-weighted assets, as
calculated under 12 CFR part 217, subpart D, as of the final quarter of
the previous capital plan cycle, unless otherwise determined by the
Board, minus the lowest projected ratio of the bank holding company's
common equity tier 1 capital to risk- weighted assets, as calculated
under 12 CFR part 217, subpart D, in any quarter of the planning
horizon under a supervisory stress test.
* * * * *
(f) Calculation of the stress capital buffer requirement--(1)
General. (i) The Board will determine the stress capital buffer
requirement that applies under 12 CFR 217.11 pursuant to this paragraph
(f). For each bank holding company that is not a Category IV bank
holding company, the Board will calculate the bank holding company's
stress capital buffer requirement annually. For each Category IV bank
holding company, the Board will calculate the bank holding company's
stress capital buffer requirement biennially, occurring in each
calendar year ending in an even number, and will adjust the bank
holding company's stress capital buffer requirement biennially,
occurring in each calendar year ending in an odd number.
Notwithstanding the previous sentence, the Board will calculate the
stress capital buffer requirement of a Category IV bank holding company
in a year ending in an odd number with respect to which that company
makes an election pursuant to 12 CFR 252.44(d)(2)(ii). The stress
capital buffer requirement calculations described in this paragraph
will be conducted using paragraphs (f)(2)(i) or (f)(2)(ii) of this
section, as appropriate. The stress capital buffer requirement
adjustment described in this paragraph will be conducted using
paragraph (f)(4) of this section.
(ii) Unless otherwise determined by the Board, a stress capital
buffer requirement that is recalculated pursuant to paragraph (f)(3) of
this section will be calculated pursuant to the methodology in
paragraph (f)(2)(ii) of this section, except that a stress capital
buffer requirement that is recalculated following the resubmission of a
capital plan pursuant to paragraph (e)(4)(i)(B)(1) of this section will
be calculated pursuant to the methodology in paragraph (f)(2)(i) of
this section.
(2) Stress capital buffer requirement calculation. (i) For a bank
holding company that was subject to the annual supervisory stress test
in the previous calendar year or that was provided with a final stress
capital buffer requirement that was recalculated pursuant to paragraph
(f)(3) of this section in the previous calendar year or earlier in the
current calendar year, a bank holding company's stress capital buffer
requirement is equal to the greater of:
(A) The following calculation:
(1) The average of the stress capital decline of the current
capital plan cycle and either the stress capital decline of the capital
plan cycle for the previous calendar year or, if the bank holding
company's currently effective stress capital buffer requirement was
recalculated pursuant to paragraph (f)(3) of this section, the stress
capital decline associated with that stress capital buffer requirement;
plus
(2) The ratio of:
(i) The sum of the bank holding company's planned common stock
dividends (expressed as a dollar amount) for each of the fifth through
eighth quarters of the current planning horizon; to
(ii) The risk-weighted assets of the bank holding company in the
quarter in which the bank holding company had its lowest projected
ratio of common equity tier 1 capital to risk-weighted assets, as
calculated under 12 CFR part 217, subpart D, in any quarter of the
planning horizon under a supervisory stress test conducted in the
current capital plan cycle; and
(B) 2.5 percent.
(ii) For a bank holding company to which paragraph (f)(2)(i) of
this section does not apply, a bank holding company's stress capital
buffer requirement is equal to the greater of:
(A) The following calculation:
(1) The stress capital decline of the current capital plan cycle;
plus
(2) The ratio of:
(i) The sum of the bank holding company's planned common stock
dividends (expressed as a dollar amount) for each of the fifth through
eighth quarters of the current planning horizon; to
(ii) The risk-weighted assets of the bank holding company in the
quarter in which the bank holding company had its lowest projected
ratio of common equity tier 1 capital to risk-weighted assets, as
calculated under 12 CFR part 217, subpart D, in any quarter of the
planning horizon under a supervisory stress test conducted in the
current capital plan cycle; and
(B) 2.5 percent.
(3) Recalculation of stress capital buffer requirement. If a bank
holding company resubmits its capital plan pursuant to paragraph (e)(4)
of this section, the Board may recalculate the bank holding company's
stress capital buffer requirement. The Board will provide notice of
whether the bank holding company's stress capital buffer requirement
will be recalculated within 75 calendar days after the date on which
the capital plan is resubmitted, unless the Board provides notice to
the company that it is extending the time period.
(4) Adjustment of stress capital buffer requirement. In each
calendar year in which the Board does not calculate a Category IV bank
holding company's stress capital buffer requirement pursuant to
paragraph (f)(1) of this section, the Board will adjust the Category IV
bank holding company's stress capital buffer requirement to be equal to
the result of the calculation set forth in paragraph (f)(2) of this
section, using the same values that were used to calculate the stress
capital buffer requirement most recently provided to the bank holding
company, except that the value used in paragraph (f)(2)(i)(A)(2)(i) or
paragraph (f)(2)(ii)(A)(2)(i) of this section, as applicable, will be
equal to the bank holding company's planned common stock dividends
(expressed as a dollar amount) for each of the fifth through eighth
quarters of the planning horizon as set forth in the capital plan
submitted by the bank holding company in the calendar year in which the
Board adjusts the bank holding company's stress capital buffer
requirement.
(5) Transition period for stress capital buffer requirement
calculation. Notwithstanding paragraph (f)(2)(i) of this section, for
all bank holding companies, the calculation of the stress capital
buffer requirement occurring in calendar year 2027 will be conducted
using paragraph (f)(2)(ii) of this section.
* * * * *
(h) * * *
[[Page 62653]]
(4) * * *
(ii) * * *
(A) Be effective on January 1 of the year immediately following the
calendar year in which a capital plan was submitted pursuant to
paragraph (e)(1)(ii) of this section; and
* * * * *
(i) * * *
(1) General. To request reconsideration of a stress capital buffer
requirement, provided under paragraph (h) of this section,
(specifically, the stress capital decline of the current capital plan
cycle) a bank holding company must submit a written request for
reconsideration.
* * * * *
(3) * * *
(i) A request for reconsideration must include a detailed
explanation of why reconsideration should be granted (that is, why the
stress capital decline of the current capital plan cycle should be
reconsidered). With respect to any information that was not previously
provided to the Federal Reserve in the bank holding company's capital
plan, the request should include an explanation of why the information
should be considered.
* * * * *
PART 238--SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL)
0
3. The authority citation for part 238 continues to read as follows:
Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463, 1464,
1467, 1467a, 1468, 5365; 1813, 1817, 1829e, 1831i, and 1972; 15
U.S.C. 78l.
Subpart S--Capital Planning and Stress Capital Buffer Requirement
0
4. In Sec. 238.170:
0
a. Redesignate paragraph (d)(18) as (d)(19);
0
b. Add new paragraph (d)(18);
0
c. Revise paragraph (f);
0
d. In paragraph (h)(2)(ii), remove the text ``fourth through seventh'',
wherever it appears and add, in its place the text ``fifth through
eighth'';
0
e. Revise paragraph (h)(4)(ii)(A);
0
f. Revise paragraph (i)(1) and (i)(3)(i); and
0
g. Remove the text ``fourth'', and add, in its place the text
``fifth'', in paragraph (k)(2).
The revisions and addition read as follows:
Sec. 238.170 Capital planning and stress capital buffer requirement.
* * * * *
(d) * * *
(18) Stress capital decline means the ratio of a covered savings
and loan holding company's common equity tier 1 capital to risk-
weighted assets, as calculated under 12 CFR part 217, subpart D, as of
the final quarter of the previous capital plan cycle, unless otherwise
determined by the Board, minus the lowest projected ratio of the
covered savings and loan holding company's common equity tier 1 capital
to risk-weighted assets, as calculated under 12 CFR part 217, subpart
D, in any quarter of the planning horizon under a supervisory stress
test.
* * * * *
(f) Calculation of the stress capital buffer requirement--(1)
General. (i) The Board will determine the stress capital buffer
requirement that applies under 12 CFR 217.11 pursuant to paragraph (f)
of this section. For each covered savings and loan holding company that
is not a Category IV savings and loan holding company, the Board will
calculate the covered savings and loan holding company's stress capital
buffer requirement annually. For each Category IV savings and loan
holding company, the Board will calculate the covered savings and loan
holding company's stress capital buffer requirement biennially,
occurring in each calendar year ending in an even number, and will
adjust the covered savings and loan holding company's stress capital
buffer requirement biennially, occurring in each calendar year ending
in an odd number. Notwithstanding the previous sentence, the Board will
calculate the stress capital buffer requirement of a Category IV
savings and loan holding company in a year ending in an odd number with
respect to which that company makes an election pursuant to 12 CFR
238.132(c)(2)(ii). The stress capital buffer requirement calculations
described in this paragraph will be conducted using paragraphs
(f)(2)(i) or (f)(2)(ii) of this section, as appropriate. The stress
capital buffer requirement adjustment described in this paragraph will
be conducted using paragraph (f)(4) of this section.
(ii) Unless otherwise determined by the Board, a stress capital
buffer requirement that is recalculated pursuant to paragraph (f)(3) of
this section will be calculated pursuant to the methodology in
paragraph (f)(2)(ii) of this section, except that a stress capital
buffer requirement that is recalculated following the resubmission of a
capital plan pursuant to paragraph (e)(4)(i)(B)(1) of this section will
be calculated pursuant to the methodology in paragraph (f)(2)(i) of
this section.
(2) Stress capital buffer requirement calculation. (i) For a
covered savings and loan holding company that was subject to the annual
supervisory stress test in the previous calendar year or that was
provided with a final stress capital buffer requirement that was
recalculated pursuant to paragraph (f)(3) of this section in the
previous calendar year or earlier in the current calendar year, a
covered savings and loan holding company's stress capital buffer
requirement is equal to the greater of:
(A) The following calculation:
(1) The average of the stress capital decline of the current
capital plan cycle and either the stress capital decline of the capital
plan cycle for the previous calendar year or, if the savings and loan
holding company's currently effective stress capital buffer requirement
was recalculated pursuant to paragraph (f)(3) of this section, the
stress capital decline associated with that stress capital buffer
requirement; plus
(2) The ratio of:
(i) The sum of the covered savings and loan holding company's
planned common stock dividends (expressed as a dollar amount) for each
of the fifth through eighth quarters of the current planning horizon;
to
(ii) The risk-weighted assets of the covered savings and loan
holding company in the quarter in which the covered savings and loan
holding company had its lowest projected ratio of common equity tier 1
capital to risk-weighted assets, as calculated under 12 CFR part 217,
subpart D, in any quarter of the planning horizon under a supervisory
stress test conducted in the current capital plan cycle; and
(B) 2.5 percent.
(ii) For a covered savings and loan holding company to which
paragraph (f)(2)(i) of this section does not apply, a covered savings
and loan holding company's stress capital buffer requirement is equal
to the greater of:
(A) The following calculation:
(1) The stress capital decline of the current capital plan cycle;
plus
(2) The ratio of:
(i) The sum of the covered savings and loan holding company's
planned common stock dividends (expressed as a dollar amount) for each
of the fifth through eighth quarters of the current planning horizon;
to
(ii) The risk-weighted assets of the covered savings and loan
holding company in the quarter in which the covered savings and loan
holding company had its lowest projected ratio of common equity tier 1
capital to risk-weighted assets, as calculated under 12 CFR part 217,
subpart D, in any quarter of the planning horizon under a
[[Page 62654]]
supervisory stress test conducted in the current capital plan cycle;
and
(B) 2.5 percent.
(3) Recalculation of stress capital buffer requirement. If a
covered savings and loan holding company resubmits its capital plan
pursuant to paragraph (e)(4) of this section, the Board may recalculate
the covered savings and loan holding company's stress capital buffer
requirement. The Board will provide notice of whether the covered
savings and loan holding company's stress capital buffer requirement
will be recalculated within 75 calendar days after the date on which
the capital plan is resubmitted, unless the Board provides notice to
the company that it is extending the time period.
(4) Adjustment of stress capital buffer requirement. In each
calendar year in which the Board does not calculate a Category IV
savings and loan holding company's stress capital buffer requirement
pursuant to paragraph (f)(1) of this section, the Board will adjust the
Category IV savings and loan holding company's stress capital buffer
requirement to be equal to the result of the calculation set forth in
paragraph (f)(2) of this section, using the same values that were used
to calculate the stress capital buffer requirement most recently
provided to the covered savings and loan holding company, except that
the value used in paragraph (f)(2)(i)(A)(2)(i) or paragraph
(f)(2)(ii)(A)(2)(i) of this section, as applicable, will be equal to
the covered savings and loan holding company's planned common stock
dividends (expressed as a dollar amount) for each of the fifth through
eighth quarters of the planning horizon as set forth in the capital
plan submitted by the covered savings and loan holding company in the
calendar year in which the Board adjusts the covered savings and loan
holding company's stress capital buffer requirement.
(5) Transition period for stress capital buffer requirement
calculation. Notwithstanding paragraph (f)(2)(i) of this section, for
all covered savings and loan holding companies, the calculation of the
stress capital buffer requirement occurring in calendar year 2027 will
be conducted using paragraph (f)(2)(ii) of this section.
* * * * *
(h) * * *
(4) * * *
(ii) * * *
(A) Be effective on January 1 of the year immediately following the
calendar year in which a capital plan was submitted pursuant to
paragraph (e)(1)(ii) of this section; and
* * * * *
(i) * * *
(1) General. To request reconsideration of a stress capital buffer
requirement, provided under paragraph (h) of this section,
(specifically, the stress capital decline of the current capital plan
cycle) a covered savings and loan holding company must submit a written
request for reconsideration.
* * * * *
(3) * * *
(i) A request for reconsideration must include a detailed
explanation of why reconsideration should be granted (that is, why the
stress capital decline of the current capital plan cycle should be
reconsidered). With respect to any information that was not previously
provided to the Federal Reserve in the covered savings and loan holding
company's capital plan, the request should include an explanation of
why the information should be considered.
* * * * *
PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)
0
5. The authority citation for part 252 continues to read as follows:
Authority: 12 U.S.C. 321-338a, 481-486, 1467a, 1818, 1828,
1831n, 1831o, 1831p-1, 1831w, 1835, 1844(b), 1844(c), 3101 et seq.,
3101 note, 3904, 3906-3909, 4808, 5361, 5362, 5365, 5366, 5367,
5368, 5371.
Appendix B to Part 252--Stress Testing Policy Statement
0
6. Amend appendix B to part 252 by removing and reserving section 2.3.
By order of the Board of Governors of the Federal Reserve
System.
Michele Taylor Fennell,
Associate Secretary of the Board.
[FR Doc. 2026-20246 Filed 10-1-26; 8:45 am]
BILLING CODE 6210-01-P
</pre></body>
</html>Indexed from Federal Register on October 2, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.