Federal Reserve Stress Test Proposal (Joint Trades)
Summary
SIFMA, BPI, ABA, FSF, ISDA and the U.S. Chamber of Commerce provided comments to the Board of Governors of the Federal Reserve System on its Notice of Proposed Rulemaking regarding Enhanced Transparency and Public Accountability of the Supervisory Stress Test Models and Scenarios; Modifications to the Capital Planning and Stress Capital Buffer Requirement Rule, Enhanced Prudential Standards Rule, and Regulation LL including the data and model documentation associated with the proposal posted on the Federal Reserve’s website.
Excerpt
The Bank Policy Institute, the American Bankers Association, the Financial Services Forum, the Securities Industry and Financial Markets Association, the International Swaps and Derivatives Association, Inc., and the U.S. Chamber of Commerce (the “Associations”) submit this letter in response to the Board of Governors of the Federal Reserve System’s Notice of Proposed Rulemaking regarding Enhanced Transparency and Public Accountability of the Supervisory Stress Test Models and Scenarios; Modifications to the Capital Planning and Stress Capital Buffer Requirement Rule, Enhanced Prudential Standards Rule, and Regulation LL 1 including the data and model documentation associated with the proposal posted on the Federal Reserve’s website. The Associations submitted a separate comment letter on the proposed scenarios for the Federal Reserve’s 2026 supervisory stress test on December 1, 2025 (the “Proposed 2026 Scenarios” and “2026 Scenarios Letter”). 2
I. Executive Summary
As noted in the 2026 Scenarios Letter, we welcome the Federal Reserve’s efforts to provide additional transparency and opportunities for public feedback on its supervisory stress testing process, which is critical for the Federal Reserve to comply with its obligations under the Administrative Procedure Act (“APA”). Both the APA 3 and the Due Process Clause 4 require the Federal Reserve to disclose to the public and request comment on the models and scenarios used in its supervisory stress test. As described in the 2026 Scenarios Letter, the stress test models and scenarios are used to impose binding capital requirements and have the force and effect of law. The annual stress tests also implement express statutory delegations. 5 These foundational legal principles underpin our recommendations in this letter regarding enhancements to the stress testing framework to increase transparency and public involvement in the stress testing process. 6
- Federal Reserve, Notice of Proposed Rulemaking regarding Enhanced Transparency and Public Accountability of the Supervisory Stress Test Models and Scenarios; Modifications to the Capital Planning and Stress Capital Buffer Requirement Rule, Enhanced Prudential Standards Rule, and Regulation LL, 90 Fed. Reg. 51,856 (Nov. 18, 2025) (hereinafter, the “Proposal”).
- Federal Reserve, Request for Comment on Scenarios for the Board’s 2026 Supervisory Stress Test, 90 Fed. Reg. 51,762 (Nov. 18, 2025); Bank Policy Institute, 2026 Stress Test Scenarios Comment Letter (Dec. 1, 2025), available at https://bpi.com/wp-content/uploads/2025/12/BPI-2026-Stress-Test-Scenarios-Comment-Letter-2025.12.01.pdf.
- See Azar v. Allina Health Servs., 587 U.S. 566, 582 (2019) (“Notice and comment gives affected parties fair warning of potential changes in the law and an opportunity to be heard on those changes—and it affords the agency a chance to avoid errors and make a more informed decision.”).
- See FCC v. Fox Television Stations, Inc., 567 U.S. 239, 253 (2012) (“[T]he void for vagueness doctrine addresses at least two connected but discrete due process concerns: first, that regulated parties should know what is required of them so they may act accordingly; second, precision and guidance are necessary so that those enforcing the law do not act in an arbitrary or discriminatory way.”).
- See 12 U.S.C. § 5365(i), § 1844(b), (c).
- The legal vulnerabilities of the Federal Reserve’s current stress test process have been explained at length in the plaintiffs’ complaint and brief in Bank Policy Institute et al. v. Board of Governors of the Federal Reserve Systems, Case No. 2:24-cv-04300, (S.D. Ohio), which has been temporarily stayed in light of the Federal Reserve’s commitments to implement reforms to the stress tests. Plaintiffs’ complaint and brief are incorporated by reference in this letter.