Federal Reserve Changes How Big Banks Are Stress Tested — Here’s Why It Matters for Financial Stability

The Federal Reserve is changing how it calculates stress capital requirements for large banks, with two years of stress-test results eventually being averaged to reduce annual volatility. The first averaged requirements take effect in 2029. Kristi Blokhin/Shutterstock

The Federal Reserve is changing how it calculates capital requirements for America’s largest banks, with the goal of making those requirements less volatile from one year to the next.

The Federal Reserve finalized changes Sept. 30 to its stress-testing framework and stress capital buffer requirements, which help determine how much capital large financial institutions must maintain to absorb losses during severe economic conditions.