Banking Watchdog: Federal Reserve Proposes Major Changes to Annual Bank Stress Tests

The Federal Reserve (the Fed), which oversees the US banking system, has proposed significant changes to its annual bank stress tests.

Stress tests are critical yearly exercises where the Fed checks to see if major banks can survive a severe economic downturn, like a deep recession or a financial crisis.

Why the Fed is Changing the Rules

The proposed changes are likely in response to lessons learned from recent financial turmoil and the increasing complexity of the banking sector. The Fed wants to ensure the tests accurately measure all the risks banks face.

The primary goal of these changes is to make the US banking system safer and more resilient. By setting a higher bar for the tests, the Fed ensures that even if a crisis hits, large banks have enough capital (money) to keep lending and support the economy.

The financial industry will now review the proposals before the Fed finalizes the new, stricter rules.