The Federal Reserve promotes a safe, sound, and efficient banking system that supports the U.S. economy through its supervision and regulation of domestic and foreign firms.
To do so, the Federal Reserve has established frameworks and programs for the largest and most complex financial institutions to achieve its supervisory objectives, incorporating lessons learned from the 2007–09 financial crisis and in the period since then.
A cornerstone of those efforts is the supervisory stress test, which assesses whether bank holding companies and U.S. intermediate holding companies with $100 billion or more in total consolidated assets are sufficiently capitalized to absorb losses during a hypothetical recession, ensuring that they can continue to be able to lend to households and businesses.1
The results of the stress test include information such as revenues, expenses, losses, pre-tax net income, and capital ratios projected under adverse economic and financial conditions for each firm. These results are projected using a set of models developed or selected by the Federal Reserve that take as inputs the Federal Reserve's scenarios and firm-provided data on their financial conditions and risk characteristics.
1. The Federal Reserve Board first adopted rules implementing these frameworks and programs in October 2012 and most recently modified these rules in January 2021. On October 10, 2019, the Board finalized a rule to amend its prudential standards to exempt firms with total consolidated assets of less than $100 billion from the supervisory stress test and to subject certain firms with total consolidated assets between $100 billion and $250 billion to the supervisory stress test requirements on a two-year cycle (84 Fed. Reg. 59032 (Nov. 1, 2019)). Firms with $250 billion or more in total consolidated assets or material levels of other risk factors remain subject to the supervisory stress test requirements on an annual basis.
On March 4, 2020, the Board approved a rule to simplify its capital rules for large firms through the establishment of the stress capital buffer (SCB) requirement, which integrates the Board's stress test results with its nonstress capital requirements (85 Fed. Reg. 15576 (Mar. 18, 2020)).
On January 19, 2021, the Board approved a rule to tailor the requirements of the Board's capital plan rule based on risk (86 Fed. Reg. 7927 (Feb. 3, 2021)). Return to text