The Federal Reserve’s proposed 2026 stress test scenarios reflect a welcome effort to enhance transparency and public accountability, the Bank Policy Institute, American Bankers Association, Financial Services Forum, Securities Industry and Financial Markets Association, International Swaps and Derivatives Association and Institute of International Bankers said in a comment letter submitted today.
The associations commend the Fed for, for the first time, publishing its proposed 2026 stress test scenarios for public comment and for articulating a more detailed scenario design policy, including guides and a macro model that describe how key variables are calibrated. These actions respond constructively to longstanding calls for the Fed to bring its stress testing models and scenarios into the Administrative Procedure Act’s notice-and-comment framework and reflect a serious effort to increase public insight into the process. Still, the scenarios, which in many cases replicate scenarios from past stress tests and were established before the new Fed guidelines, would benefit from some revisions. For example, the scenarios and associated models that the Federal Reserve uses to design the scenarios often compress the timelines of observed stress periods to achieve peak-level stress calibrations over a shorter number of quarters than is reflected in historical precedents.
Open questions remain on how the Fed will exercise its discretion on scenario design in practice. Greater clarity and firmer guardrails on how that discretion is applied year to year would further bolster the framework’s credibility and ensure that bank capital requirements are based on a coherent and plausible foundation.
“The Enhanced Transparency NPR and the publication of the Proposed 2026 Scenarios for public comment represent an improvement in the overall transparency and accountability of the Federal Reserve’s stress testing processes. However, the proposed framework would grant inordinate discretion to the Federal Reserve, without requiring sufficient explanation for its design choices year-to-year,” the associations stated in the letter.
Background. The Fed on Oct. 24, 2025, issued proposals to increase transparency and accountability in the stress testing process, in line with BPI and co-plaintiffs’ 2024 legal challenge, which called for the Fed to subject its stress testing scenarios and models to public comment under the Administrative Procedure Act.*
- Today’s comment letter responds to the proposed 2026 stress test scenarios.
- A separate comment letter will address the Fed’s broader proposal on the revised framework, including the stress test models and scenario design. The Fed extended the comment deadline on this proposal to Feb. 21, 2026.
Why It Matters. The proposed framework will drive how the central bank establishes binding capital requirements that determine the cost of credit in the economy. The design choices underpinning models and scenarios ultimately drive the cost of loans and financing. With insufficient explanation of design choices, the stress tests could continue to produce volatile results year-to-year, distorting the cost of financial intermediation.
- The stress testing framework is not the sole driver of banks’ capital requirements. Given the interplay between stress tests and other parts of the capital framework, the importance of coherent stress test scenarios is critical.
- Transparency is not simply about disclosing more information, but also about explaining how that information is used in decision-making so that stakeholders can understand and, where appropriate, comment on the choices the Fed makes in scenario design. A clearer articulation of the link between the disclosed guides and models for the final scenario paths would further strengthen the credibility of the framework.
Specific Concerns. The associations highlight several instances where more explanation would be beneficial in the proposed scenarios. For example:
- The Fed has chosen to calibrate variables for which it retains flexibility near or in the upper one-third of their ranges of severity. It does not explain how it arrived at this severe calibration.
- The 2026 severely adverse scenario also results in severe shocks across asset classes simultaneously without appearing to take into account the recent dynamics in these markets. The trajectories of several of the modeled variables reflect deviations from the macroeconomic model that are not described.
- The Global Market Shock, a market risk element applied to banks with large trading operations, provides a significant level of discretion in its methodology. The effect of the Federal Reserve’s chosen percentile level for a specific shock may translate to vastly different severities of the shocks, with direct effects on binding capital requirements for the covered banks. Further explanation is warranted on how the Fed will select the severities of these shocks each year.
- The associations urge the Fed to build on its progress by providing more detail on how it will choose points within the permitted ranges for key variables, including how current economic and financial conditions, historical experience and model outputs inform those choices.
* This legal challenge was filed in December 2024 by the Bank Policy Institute, the American Bankers Association, the U.S. Chamber of Commerce, the Ohio Bankers League and the Ohio Chamber of Commerce.
