FEDERAL RESERVE BOARD FINALIZES HYPOTHETICAL SCENARIOS FOR ITS ANNUAL STRESS TEST AND VOTES TO MAINTAIN THE CURRENT STRESS TEST-RELATED CAPITAL REQUIREMENTS UNTIL PUBLIC FEEDBACK CAN BE CONSIDERED

The following information was released by the Federal Reserve Board:

The Federal Reserve Board on Wednesday finalized the hypothetical scenarios for its annual stress test, which helps ensure that large banks can continue to lend to households and businesses even in a severe recession. The final scenarios are substantially similar to the scenarios proposed in October. Additionally, 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.

"Waiting to calculate new stress capital buffer requirements until we receive public feedback will give us the opportunity to correct any deficiencies in our supervisory models based on that feedback," said Vice Chair for Supervision Michelle W. Bowman. "This should further improve the transparency, effectiveness, and fairness of our models and improve our accountability to the public."

The Board's annual stress test evaluates the resilience of large banks by estimating losses, net revenue, and capital levels under hypothetical recession scenarios that extend two years into the future. This year, 32 banks will be tested against a severe global recession with heightened stress in both commercial and residential real estate markets, as well as in corporate debt markets. The scenarios are not forecasts and should not be interpreted as predictions of future economic conditions.

In the 2026 stress test scenario, the U.S. unemployment rate rises nearly 5.5 percentage points, to a peak of 10 percent. The unemployment rate increase is accompanied by severe market volatility, a widening of corporate bond spreads, and a collapse in asset prices, including about a 30 percent decline in house prices and a 39 percent decline in commercial real estate prices.

Large banks with substantial trading or custodial operations are also required to incorporate a counterparty default scenario component to estimate potential losses from the unexpected default of the firm's largest counterparty amid an acute market shock. In addition, banks with large trading operations will be tested against a global market shock component that primarily stresses their trading and related positions. The final scenarios include two revisions to the global market shock component to improve consistency across shocks applied to similar exposures and enhance plausibility.

The table below shows the components of the annual stress test that apply to each bank, based on data as of the third quarter of 2025. The brief methodology document describes the Board's intention to generally use the same models as the 2025 stress test with limited model adjustments.