Scenarios for the Board’s 2026 Supervisory Stress Test (Joint Trades)

Summary

The Bank Policy Institute (BPI), the American Bankers Association (ABA), the Financial Services Forum (FSF), the International Swaps and Derivatives Association, Inc. (ISDA), and the Institute of International Bankers (IIB) provided comments to the Board of Governors of the Federal Reserve System’s Request for Comment on the proposed scenarios for the Federal Reserve’s 2026 supervisory stress tests, including the scenario data and model documentation used to produce the scenarios posted on the Federal Reserve’s website.

Excerpt

December 1, 2025

Via Electronic Mail

Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW
Washington, D.C. 20551
Attention: Ann E. Misback, Secretary

Re: Request for Comment on Scenarios for the Board’s 2026 Supervisory Stress Test (Docket
No. OP-1871)

Ladies and Gentlemen:

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 Institute of International Bankers (the “Associations”) submit this letter in response to the Board of Governors of the Federal Reserve System’s Request for Comment on the proposed scenarios for the Federal Reserve’s 2026 supervisory stress tests, ¹ including the scenario data and model documentation used to produce the scenarios posted on the Federal Reserve’s website. The Associations will submit a separate comment letter on the 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 (the “Enhanced Transparency NPR”), ² which was released on the same day as the request for comment on the proposed 2026 scenarios and has a comment deadline of February 21, 2026.

This letter addresses comments on the 2026 severely adverse scenario and related aspects of the Macroeconomic Model Guide and Global Market Shock (“GMS”) used to produce the 2026 severely adverse scenario. We have also previewed in this letter some—but not all—of the comments on the broader scenario design and stress testing framework that we intend to address in greater detail in our forthcoming letter on the Enhanced Transparency NPR. ³ We also intend to provide further comments on the Macroeconomic Model Guide and GMS in that letter. ⁴

As an initial matter, we welcome the Federal Reserve’s efforts to provide additional transparency and opportunities for public feedback on the scenarios used in its supervisory stress test, which is critical for the Federal Reserve to comply with its obligations under the Administrative Procedure Act (“APA”). The scenarios and models that the Federal Reserve uses in its stress testing framework are legislative rules (or components thereof) that are required to be subject to public notice and comment in accordance with the APA. ⁵ The models and scenarios are used to determine firms’ binding capital requirements under the stress capital buffer requirement and have the force and effect of law. The annual stress tests—including the scenarios and models—also implement express statutory delegations. ⁶ In addition, the Federal Reserve is required under both the APA ⁷ and the Due Process Clause ⁸ to make the models and scenarios available to the public to provide fair notice of the process and methodologies that it will use to impose binding capital requirements. ⁹

In light of the Federal Reserve’s legal obligations, the Associations are concerned that critical components of the 2026 severely adverse scenario will be decided solely at the Federal Reserve’s discretion, and that the lack of transparency regarding how the Federal Reserve will exercise its discretion will undermine and effectively could circumvent the legally required public comment process going forward. As just one example, the Enhanced Transparency NPR notes the Federal Reserve “expect[s] that there will be some important instances when it will be appropriate to augment the recession approach with salient risks and to set variables values inside of, and in some cases, outside of the ranges and values provided in the guides in the Scenario Design Policy Statement.” ¹⁰ Similarly, the Federal Reserve noted that it “will endeavor to disclose and explain” its reasoning in the publication of the annual scenarios. ¹¹ “Endeavoring” to explain these deviations is not sufficient. The ranges and values provided in the guides generally should apply, with deviations occurring only if they have been thoroughly described and explained in the proposed annual severely adverse scenario and the public is provided a meaningful opportunity to provide comments on the proposed scenario, including the rationale for any such deviation. Given the short timeframe to finalize the severely adverse scenario each year, consistency and transparency will also be critical to avoid delays related to a lack of clarity or rationale for the Federal Reserve’s proposed annual scenario.

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