Board of Governors of the Federal Reserve System

Introduction

This document provides details about the models developed or selected by the Federal Reserve for use in the 2025 stress test. Consistent with its practice in prior years, the Board will provide descriptions of any additional model adjustments made for the 2025 stress test in the 2025 stress test results disclosure. Transparency of the stress test models improves the public's understanding of the models used in the stress test while maintaining the efficacy of the test.

In December 2024, the Board notified the public that it will soon seek public comment on significant changes to improve transparency of the stress test and reduce the volatility of the resulting capital buffer requirements.² The announcement noted the Board's intention to propose changes that include, but are not limited to, disclosing and seeking public comment on all of the models that determine the hypothetical losses and revenues of banks under stress; averaging results over two years to reduce the year-over-year changes in the capital requirements that result from the stress test; and ensuring that the public can comment on the hypothetical scenarios used annually for the test, before the scenarios are finalized. Consistent with this announcement, on April 17, the Board requested comment on a proposal to reduce the volatility of the capital requirements stemming from the annual stress test results.³

Later this year, the Board intends to propose additional changes to improve the transparency of the stress test. Those changes include disclosing and seeking public comment on the models that determine the hypothetical losses and revenue of banks under stress and providing the public the opportunity to comment on the hypothetical scenarios used for the annual stress test before the scenarios are finalized. In light of the upcoming process through which the Board will seek broad feedback on the stress test models and scenarios, the Board has opted to use largely identical models to those used during the 2024 stress test for the 2025 stress test. This approach will facilitate a clear and orderly process for the Board to obtain feedback on those models and any improvements under consideration, and it will be consistent with the Board's future approach to making material changes to the models.

To this end, the only material changes to the models in the 2025 stress test will be those that have previously been publicly announced. These changes include those that the Board began to phase in during the 2024 cycle, as well as the change in the treatment of private equity that was described in the December 30, 2024, FAQ.⁴ See appendix A for more information on this year's model changes.

Further, to improve model transparency ahead of the 2025 stress test, this document includes additional information about the Board's approach to modeling pre-provision net revenue and private equity exposures in the stress test.

This document is organized into the following sections:

• " Approach to Supervisory Model Development and Validation" provides an overview of the general approach to supervisory model development and validation in stress testing.
• " Overview of Modeling Framework" summarizes the supervisory modeling framework and methodology.
• " Descriptions of Supervisory Models" includes detailed descriptions of the supervisory stress test models.
• " Modeled Loss Rates" contains additional disclosures for certain material portfolios, including modeled loss rates on pools of loans and loss rates associated with portfolios of hypothetical loans.
• " Appendix A: Model Changes for the 2025 Stress Test" describes the supervisory model changes effective for the 2025 stress test.
• " Appendix B: Templates for the 2025 Stress Test Results" shows the format in which the 2025 stress test results will be disclosed.
• " Appendix C: Loan Category Definitions and Models" provides a mapping of loan types to disclosure categories and models.

References

 2. For more information, see Board of Governors of the Federal Reserve System, "Due to Evolving Legal Landscape & Changes in the Framework of Administrative Law, Federal Reserve Board Will Soon Seek Public Comment on Significant Changes to Improve Transparency of Bank Stress Tests & Reduce Volatility of Resulting Capital Requirements," press release, December 23, 2024, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20241223a.htm. Return to text

 3. See Board of Governors of the Federal Reserve System, "Federal Reserve Board Requests Comment on a Proposal to Reduce the Volatility of the Capital Requirements Stemming from the Board's Annual Stress Test Results," press release, April 17, 2025, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250417a.htm. Return to text

 4. See "Comprehensive Capital and Analysis Review and Dodd-Frank Act Stress Tests: Questions and Answers," SHK0502, December 30, 2024, Board of Governors of the Federal Reserve, https://www.federalreserve.gov/publications/ccar-qas/comprehensive-capital-analysis-and-review-questions-and-answers.htm. Return to text