Bowman previews a stress-test overhaul and capital rules before year-end

Federal Reserve Vice Chair for Supervision Michelle Bowman previewed forthcoming changes to US stress tests¹. She said the Fed will consider final revisions to the board’s rules, according to a market wire timed at 1434 GMT². The central bank will consider final rules in the coming weeks, with the stated aim of making the tests more transparent³.

The Fed is also to consider changes to its 2027 stress-testing models⁴. One area concerns income that encompasses fee and trading revenue banks earn from activities including wealth management⁴.

Bowman’s remarks were delivered publicly and carried the same day across bank-policy wires, which is how the sequencing became known before any rule text was released^1,2. The Fed has not yet published the final revisions it says it will consider^2,3.

Why it matters to investors

The stress test is not the end of the sequence. After the test changes, the Fed will look to cement changes to the GSIB surcharge and the Basel III capital framework before the end of the year⁵. Those three items together set how much capital the largest banks must hold^4,5.

The modelling detail matters as much as the framework. How fee and trading revenue is treated in the models feeds directly into the loss path a bank is tested against, and therefore into its required buffer^3,4. Greater transparency about the models changes what banks can anticipate before results are published^1,3.

What to watch

The supervisory agenda sits alongside the review Bowman commissioned into a bank failure. She has the early returns from that report on the 2023 collapse and has called for supervisory reform on the strength of them⁶. The stress-test and capital work is therefore arriving at the same time as a separate argument about how supervision itself is conducted^1,6. The preview came from the vice chair for supervision rather than from the board as a whole¹.

Three markers follow. The first is the timing of the final revisions, which Bowman has placed in the coming weeks rather than in the next cycle^2,3. The second is whether the GSIB surcharge and Basel III changes are completed before the end of the year, as previewed⁵. The third is how far the published models go, since transparency is the stated purpose of the overhaul and is also the part banks can act on^3,4.