The Federal Reserve will soon propose a revised stress test model for noninterest income to better capture business diversity across firms, Vice Chair for Supervision Michelle Bowman said today.
During a speech in London, Bowman outlined recent efforts to revise the Fed’s stress test framework for large banks. They include proposals to require the Fed to annually disclose stress test model documentation and scenarios, as well as seek public comment on any material changes to the models.
“The existing framework — including the stress test models, scenario design framework, and specific scenarios — is not adequately disclosed or subject to public comment,” Bowman said of the previously announced proposals. “This lack of transparency can lead to uncertainty for banks in capital planning, potential misalignment of capital requirements with actual risks, and limited public understanding and scrutiny of the stress testing process.”
Bowman said the Fed will soon seek comment on a new stress test proposal on noninterest income, which is the fee and trading revenue that banks earn from activities including wealth management, investment banking and market making. “This model would better capture business diversity across firms and would replace the existing noninterest income model for the 2027 stress test,” she said.
The American Bankers Association has joined with other financial sector associations to urge the Fed to pursue further changes to the stress test framework. In a letter last year, the associations said key questions remain about how the Fed will exercise its discretion in scenario design. And in a February letter, the associations offered multiple recommendations to improve stress tests.
