The Federal Reserve supervisory stress test is an important risk management tool for banks and supervisors, designed to evaluate whether the largest U.S. banks have enough capital to withstand adverse economic conditions. It applies specifically to large institutions. Community banks and most regional banks below $100 billion in assets are exempt.
How it works: The Fed tests banks annually against a “severely adverse” economic scenario, such as:
- A deep recession with high unemployment.
- Falling home prices and declining GDP.
- Sharp stock-market losses.
These scenarios are updated every year. Read our analysis of the latest scenario here.
Put simply, the test evaluates how banks would perform during an economic shock. The goal is to determine the minimum amount of capital each bank must hold so that they can weather a crisis.
The stress test is not a college math exam. Banks do not “pass” or “fail” the stress tests in the school sense.
It is more akin to a test of a car crash dummy, where regulators measure the outcome and identify the weaknesses.
Test results determine each bank’s stress capital buffer (SCB), a tailored capital requirement that dictates how much capital a bank must maintain to continue operating during a crisis. These requirements rely on complex models that were kept secret until recently. The lack of transparency into the models has created economic uncertainty and unnecessarily restricted the flow of credit to households and businesses.
Non-disclosure of scenario models is like a car crash test where the engineers aren’t allowed to see the impact data. Just as engineers need these results to design safer cars, banks need access to these models to identify and patch vulnerabilities, in turn building a more resilient financial system. To read more about the importance of stress testing transparency, visit here.
Stress Testing – A Brief History
- 2009: Began as the Supervisory Capital Assessment Program to restore confidence during the Global Financial Crisis.
- 2011: Evolved into the Comprehensive Capital Analysis and Review (CCAR), making it a permanent supervisory tool.
- Today: Serves as the central tool for estimating capital depletion in severe economic scenarios.
In October 2025, the Fed issued a significant proposal to improve the accuracy and transparency of its stress testing models and the stress testing framework more generally.
These changes matter because outcomes from the stress tests have real-world consequences, influencing banks’ ability to lend, pay dividends and support broader economic activity. Read BPI’s analysis of stress test results here and BPI’s position on the Fed’s latest stress test proposal here.
