The Federal Reserve’s proposed 2026 stress test scenarios reflect a welcome effort to enhance transparency and public accountability, but there remain key questions about how the Fed will exercise its discretion in scenario design, the American Bankers Association, Bank Policy Institute and four other associations said yesterday in a joint letter.
The Fed in October advanced proposed rulemaking to annually disclose the stress test model documentation and scenarios, as well as seek public comment on any material changes to the models. The proposed changes came after the American Bankers Association joined the Ohio Bankers League, Bank Policy Institute and other industry groups last year in a lawsuit challenging the stress testing framework for being too opaque.
In a letter to the Fed, the associations welcomed efforts to provide additional transparency and opportunities for public feedback on the scenarios used in its supervisory stress test. Still, they said that components of the 2026 severely adverse scenario will be decided solely at the Fed’s discretion, “and that the lack of transparency regarding how the Federal Reserve will exercise its discretion will undermine and effectively could circumvent the legally required public comment process going forward.”
“The Enhanced Transparency [notice of proposed rulemaking] 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,” they said. “However, the proposed framework would grant inordinate discretion to the Federal Reserve, without requiring sufficient explanation for its design choices year-to-year.”
