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Fed freezes bank capital rules during stress-test overhaul

Fed freezes bank capital rules during stress-test overhaul

Rule Changes

All 32 lenders passed the June exam, and the Fed's September rule says when the scores start moving capital again: January 2028.

September 30th, 2026: Fed finalizes the stress-test overhaul

Overview

Updated Oct 23

All 32 large banks passed the Federal Reserve's 2026 stress test on June 24, keeping capital above minimums even after $708 billion in projected losses. Their scores did not change how much capital they must hold.

On September 30 the Fed finalized the rewrite of the test that will start counting. It will seek public comment every year on its scenarios and any material model changes, and from 2028 it will average the two most recent exams when setting each bank's capital cushion. The Fed expects year-to-year swings in those requirements to fall by about half.

Why it matters

Banks can plan dividends and buybacks knowing their capital bills are fixed until January 2028.

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Key Indicators

32
Banks tested
Large U.S. lenders graded in the 2026 stress test.
10%
Peak unemployment in scenario
The hypothetical jobless rate banks were tested against.
$708B
Projected losses
Losses the 32 banks would absorb in the hypothetical recession.
-39%
Commercial real estate drop
Assumed fall in commercial property values in the test.
-30%
Home price drop
Assumed decline in house prices under the scenario.
Jan 1, 2028
New rules take effect
First capital requirements set under two-year averaging.

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People Involved

Michelle Bowman
Michelle Bowman
Federal Reserve Vice Chair for Supervision
Finalized the stress-test overhaul on September 30
 Jamie Dimon
Jamie Dimon
Chairman and CEO, JPMorgan Chase
Raised dividend and announced new buyback after results

Organizations Involved

Board of Governors of the Federal Reserve System
Board of Governors of the Federal Reserve System
Central bank
Finalized the stress-test overhaul; new capital requirements take effect January 1, 2028

The U.S. central bank, which sets monetary policy and supervises large banks.
Bank Policy Institute
Bank Policy Institute
Banking policy organization
Co-plaintiff in lawsuit that prompted the overhaul

A trade group representing large U.S. banks on regulatory policy.

Timeline

December 2024 September 2026

6 events Latest: September 30th, 2026 · 1 month ago
Tap a bar to jump to that date

  1. Fed finalizes the stress-test overhaul

    Latest Regulation

    The Fed finalizes rules that invite public comment every year on its scenarios and model changes, and adopts the models for the 2027 test. Starting in 2028 it will average the two most recent exams when setting capital cushions, which the Fed expects to halve year-to-year swings without materially changing aggregate capital.

  2. Results released, banks pass

    Results

    All 32 banks clear the test against a 10% unemployment scenario. JPMorgan raises its dividend and approves a roughly $30 billion buyback. The scores do not change capital requirements.

  3. Release date set

    Announcement

    The Fed says it will publish the 2026 stress-test results on June 24 at 4 p.m. Eastern for 32 large lenders.

  4. Capital buffers frozen until 2027

    Decision

    The Fed finalizes the 2026 scenario and votes to keep current capital requirements unchanged until 2027 while it revises its models.

  5. Fed proposes opening the black box

    Regulation

    The Fed issues formal proposals to disclose its stress-test models for public comment and to average results over two years to cut volatility.

  6. Banks sue, Fed signals change

    Legal

    Industry groups sue the Fed over secret stress-test models. The same day, the Fed says it will seek public comment on making the test more transparent.

Scenarios

1

Fed finalizes new stress-test models, sets fresh capital rules for 2027

Likely Resolves by Aug 31, 2027

Discussed by: Sullivan & Cromwell, Bank Policy Institute, ABA Banking Journal

The Fed works through public comments on its October 2025 proposals, finalizes revised models with disclosed equations and two-year averaging, and uses them to calculate stress capital buffers that take effect in 2027. This is the path the Fed laid out when it froze 2026 requirements.

2

Court ruling forces the Fed to change the stress test

Possible Resolves by Q2 2027

Discussed by: Banking Dive, American Bankers Association

The lawsuit in the Southern District of Ohio produces a ruling or settlement that compels the Fed to alter how it runs or discloses the stress test, beyond what it has voluntarily proposed. A win for the banks would lock in transparency requirements through the courts rather than Fed discretion.

3

Lower capital demands free up record shareholder payouts

Possible Resolves by End of 2026

Discussed by: International Banker, bank earnings analysts

With requirements frozen and the proposed changes expected to lower buffers, the largest banks announce a combined wave of dividend increases and buybacks larger than the prior year. JPMorgan's roughly $30 billion buyback set the early tone after the 2026 results.

4

First averaged capital requirements land on January 1, 2028

Likely Resolves by Jan 1, 2028

Discussed by: Federal Reserve Board, Federal Register notice

Under the rules finalized September 30, the Fed averages results from the two most recent annual stress tests when calculating each firm's stress capital buffer. The first requirements built that way take effect January 1, 2028, replacing buffers that have been frozen since the 2026 cycle.

Historical Context

2 moments from history that rhyme with this story — and how they unfolded.

May 2009

First post-crisis stress tests, the SCAP (2009)

In the depths of the financial crisis, the Fed ran its first big stress test on 19 banks. Regulators found 10 needed to raise about $75 billion in new capital. The exercise, called SCAP, helped calm markets by showing which banks were sound.

Then

Banks raised the capital, and confidence in the system began to return.

Now

The test became an annual fixture and the model for how regulators police bank capital.

Why this matters now

It explains why the test exists and why its results move markets. The 2026 fight is over how that now-permanent test is run.

July 2010

Dodd-Frank Act mandates annual tests (2010)

Congress passed the Dodd-Frank Act after the crisis. It required the Fed to stress-test large banks every year and tied the results to how much capital each must hold. That link turned a one-off exercise into a yearly capital-setting machine.

Then

The Fed built a formal annual program with published scenarios.

Now

Stress-test scores became central to bank planning for dividends and buybacks.

Why this matters now

The law is why a test result dictates capital bills, the exact mechanism the banks' lawsuit and the Fed's overhaul now target.

Sources

(9)
+3
Federal Reserve Board Sullivan & Cromwell LLP American Bankers Association International Banker Federal Register Reuters Federal Reserve Board Federal Reserve Board Federal Reserve Board