The Federal Reserve finalized its stress test changes in a major win for Wall Street banks, preserving resilience while increasing transparency and risk sensitivity. Fed Vice Chair Michelle Bowman emphasized the updates ensure the stress test remains a robust part of the regulatory capital framework. The two final rules mirror 2025 proposals welcomed by banks after years of industry pressure to reform the post-2008 test.

Key adjustments include requiring the Fed to solicit input on scenarios and model changes, updating the global market shock component, and revising the stress test calendar. A new provision mandates averaging stress capital buffer results from the two most recent annual tests, starting in 2028, to prioritize models with public input. The Fed estimates these changes will cut year-over-year capital requirement volatility by about 50 percent without significantly affecting aggregate capital.

The agency also sought feedback on improving how it captures differences in banks’ business models for fee income. The Fed’s board approved the changes 6 to 1, though Fed Governor Michael Barr dissented, warning the rules could weaken the stress test and bank resilience. Industry groups, representing lenders like JPMorgan Chase & Co. and Goldman Sachs Group Inc., had previously sued the Fed over transparency concerns.

Big banks recently passed the exam and distributed record levels of dividends and share repurchases to shareholders.