Key Points:
- The Federal Reserve will not adjust bank capital requirements for the 2026 cycle.
- Vice Chair Michelle Bowman says updates to capital buffers will wait until 2027.
- The delay allows the Fed to fix errors in its testing models based on public feedback.
- Governor Michael Barr voted against the pause, warning it could make the tests outdated.
The Federal Reserve announced on Wednesday that it will keep capital requirements for large banks steady during the 2026 stress test cycle. The central bank wants to pause and review its testing process to ensure the rules are fair and transparent before making any changes.
Fed Vice Chair for Supervision Michelle Bowman explained that the “stress capital buffers”—the extra cash banks must hold to survive a crisis—will not change until 2027. This delay gives the Fed time to listen to the public. In October, the Fed voted to reveal the secret formulas, or models, it uses to grade the banks. By waiting, officials can find and fix any flaws in these models before using them to set financial rules.
“Waiting to calculate new stress capital buffer requirements… will give us the opportunity to correct any deficiencies,” Bowman stated.
This move addresses a long-standing complaint from Wall Street. For years, banks argued that the annual exams were a “black box,” meaning the process was too secretive and subjective. Since the results determine how much money banks must keep in reserve, the industry pushed hard for more openness. The decision to accept feedback on the models is a significant victory for these financial institutions.
Even though the capital requirements won’t change this year, the test itself remains tough. The Fed released its scenario for 2026, which imagines a harsh economic disaster. The hypothetical situation includes a sharp spike in unemployment, wild swings in the markets, and a steep drop in asset prices.
Not everyone at the Fed agreed with this approach. Governor Michael Barr, the former top regulator, voted against the decision. He argued that freezing the capital levels is a mistake. Barr believes this could cause the stress tests to “stagnate.” Instead of hitting pause, he argued the Fed should set capital levels based on the most current risks facing the banking system right now.
