U.S. lawmakers urge Fed to rescind bank stress test changes

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Fed bank stress test changes

Highlights

Senator Elizabeth Warren and Congresswoman Maxine Waters urged the Fed to rescind stress test proposals and overhaul its models before the 2027 cycle.
Lawmakers argue the Fed's proposed changes would reduce scrutiny, allow banks influence over stress scenarios, and threaten financial stability, with a Fed response requested by May 12, 2026.
The proposal could cut capital requirements for the riskiest banks by over $35 billion, potentially freeing funds for dividends and share buybacks instead of loss absorption.

Lawmakers press for reversal before 2027 tests

As reported by the Senate Committee on Banking, Housing, and Urban Affairs, U.S. Senator Elizabeth Warren and Congresswoman Maxine Waters sent a letter to Federal Reserve Vice Chair for Supervision Michelle Bowman urging the Fed to immediately rescind its stress testing proposals and carry out a full overhaul of its internal stress testing models ahead of the 2027 exercise.

Warren, the ranking member of the Senate Committee on Banking, Housing, and Urban Affairs, and Waters, the ranking member of the House Financial Services Committee, argue that the proposals give large banks too much influence over a process meant to measure their ability to withstand economic shocks. In their letter, they say the Fed has effectively disclosed its internal models, proposed changes that would weaken them, and opened the door for banks to help shape the economic scenarios used in the tests.

The lawmakers say those steps amount to allowing banks to influence the questions meant to assess their resilience while also giving them the answer key. They requested written responses on the recently released proposal and its implications for financial stability by May 12, 2026.

Capital cushion concerns for Wall Street banks

The letter says Wall Street has long pushed to weaken the Fed's stress tests in order to reduce loss-absorbing capital buffers and free up more money for dividends and share buybacks. The lawmakers contend the current proposal would make megabanks appear stronger after shock events without requiring them to reduce their underlying risks.

They also say the changes would leave the largest banks in a weaker position during periods of financial turbulence. According to the letter, the Fed's proposal would cut capital requirements at the riskiest banks by more than $35 billion, funds the lawmakers say could instead be redirected to shareholders and stock repurchases rather than used to absorb losses.

Our earlier report on revised Basel III-related bank capital rules explained how lawmakers were scrutinizing an updated framework that aims to be more tailored and evidence-based than the 2023 version. It outlined concerns about how capital requirements could affect lending, housing finance, derivatives hedging, and broader capital markets activity while balancing safety and soundness with economic growth.

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