Federal Reserve shifts stress buffer calculations to two-test average

The Federal Reserve has adopted a final rule changing stress capital buffer calculations for certain large firms, with the rule effective on 1 December 2026 and results averaging beginning in 2029.

The Federal Reserve System final rule, published on 2 October 2026 under Docket No. R-1866, amends Regulations Y, LL and YY. It applies to certain large bank holding companies, savings and loan holding companies, US intermediate holding companies of foreign banking organisations and nonbank financial companies supervised by the Board.

The rule uses the average of the maximum projected common equity tier 1 capital ratio declines from the Board’s prior two annual supervisory stress tests to calculate the stress capital buffer requirement. The Board said the change is intended to reduce volatility in that requirement.

The record does not identify a revised buffer for any individual firm.

A three-stage implementation sequence

The rule is effective on 1 December 2026, but firms subject to results averaging will not use that method immediately. Until 1 January 2029, they remain subject to the stress capital buffer requirement without results averaging.

Beginning on 1 January 2029 and continuing through 31 December 2029, the stress capital buffer requirement for firms subject to results averaging will incorporate the average of the 2027 and 2028 stress capital decline components. The two-test method averages those components symmetrically, as set out in the final rule.

The Board has also moved the annual effective date of the stress capital buffer requirement from 1 October to 1 January. The final rule says the additional quarter is intended to provide firms with more time to comply with the requirement. This annual date change is separate from the delayed introduction of the two-test averaging method.

The rule also removes the phase-in of highly material supervisory model changes from the Stress Testing Policy Statement. The source record identifies amendments to the FR Y-14A/Q/M reports, but does not provide enough detail to describe those reporting changes.

The instrument operates through the Board’s federal capital framework. Its stated covered population does not establish requirements for firms outside the listed categories, and the record does not identify an individual firm’s revised capital buffer.

The chronology gives covered firms three dates to monitor: the rule’s effective date of 1 December 2026, the annual 1 January effective date for the stress capital buffer requirement and the start of results averaging on 1 January 2029. The final rule and the 2029 transition are the official signals identified in the record; no further scheduled docket event is identified.