HR5270-119

What This Bill Does

This bill makes Federal Reserve stress testing more transparent and more procedurally constrained. Within 90 days, the Federal Reserve Board must issue a rule establishing the models, assumptions, formulas, and decisional methodologies used to conduct stress tests under section 165(i) of the Financial Stability Act, including stress tests used to determine a stress capital buffer for a covered company. Material changes to those methodologies must go through notice and comment.

The bill also changes how stress-test results feed capital requirements. When multiple analyses are available, the stress capital buffer must be determined using two or more analyses rather than a single result. The Board may not double-count the same risks in both the stress capital buffer and risk-based capital requirements. Beginning in the first calendar year after enactment, the Board must publicly disclose each stress-test scenario at least 60 days before the test. The bill also prohibits climate-related stress tests under section 165(i) for nonbank financial companies and bank holding companies and requires GAO to report every three years on the effectiveness of Fed stress tests.

Who Benefits and How

Large bank holding company compliance officers benefit from advance disclosure of stress-test scenarios and from rulemaking procedures before major methodology changes. Nonbank financial company compliance staff supervised by the Federal Reserve benefit from the prohibition on climate-related section 165(i) stress tests. Bank capital planning officers benefit because models, assumptions, formulas, and decisional methodologies must be established by rule and scenarios must be published 60 days before testing. Bank investors benefit from more predictable stress capital buffer calculations. Administrative-law attorneys and banking trade association staff gain clearer procedural hooks for contesting methodology changes.

Who Bears the Burden and How

Federal Reserve Board stress-test staff must write rules, disclose scenarios earlier, justify material methodology changes through notice and comment, and avoid double-counting risks across capital regimes. The Board loses flexibility to change stress-test models quickly or run climate-related stress tests under section 165(i). GAO auditors must review three years of stress tests on a recurring cycle and report to Congress. Financial-stability policymakers bear risk if early scenario disclosure or procedural limits make stress tests less adaptive to emerging risks.

Key Provisions

• Requires the Federal Reserve Board to establish stress-test models, assumptions, formulas, and decisional methodologies by rule.
• Requires notice-and-comment procedures for material stress-test methodology changes.
• Bars double-counting the same risks in stress capital buffers and risk-based capital requirements.
• Requires public disclosure of each stress-test scenario at least 60 days before testing.
• Prohibits climate-related section 165(i) stress tests for covered nonbank financial companies and bank holding companies.
• Directs GAO to report every three years on Federal Reserve stress-test effectiveness.