Fed bank stress tests explained — what's new this year

• The test models a severe global recession with heightened stress in commercial and residential real estate markets, requiring banks to stay above a 4.5% minimum capital ratio
• Capital buffers are frozen for this cycle as the Fed implements changes allowing banks to review and comment on previously confidential test models and scenarios
• The exercise covers 32 banks, with results releasing Wednesday at 4:00 p.m. ET, providing transparency into bank health without triggering capital requirement changes

Fed Bank Stress Tests 2024: Summary

The Federal Reserve will release its annual bank stress test results on Wednesday, June 23 at 4:00 p.m. ET, covering 32 banks against a hypothetical severe global recession scenario.

Key Changes This Year

Unlike previous years, this year's results will not affect banks' capital requirements or buffers. The Fed announced it will maintain existing capital levels from the 2026 test while overhauling its testing methodology in response to industry criticism.

How Stress Tests Work

The tests, established after the 2007-2009 financial crisis and formally launched in 2011, assess whether banks can maintain the required 4.5% minimum capital ratio during severe economic downturns. Major global banks must also hold an additional G-SIB surcharge of at least 1%.

This year's scenario includes:

• Severe global recession
• Heightened stress in commercial and residential real estate
• Global market shock for large trading operations
• Default of largest counterparty

Why Capital Levels Are Frozen

The Fed is addressing long-standing bank complaints about the process being overly opaque and subjective. Fed Vice Chair Michelle Bowman proposed reforms allowing banks to review and comment on previously confidential testing models and scenarios—a significant industry victory, though critics warn it may reduce exam effectiveness.

The freeze allows regulators to incorporate feedback and "correct any deficiencies" during the transition period.

Historical Context

Early tests saw major institutions including Citigroup, Bank of America, JPMorgan Chase, and Goldman Sachs forced to adjust capital plans. Deutsche Bank's U.S. subsidiary failed tests in 2015, 2016, and 2018. The Fed eliminated the pass-fail model in 2020, introducing more nuanced, bank-specific requirements.