On February 4, 2026, the Federal Reserve Board announced it has finalized the hypothetical scenarios for its upcoming annual stress test, designed to evaluate the resilience of major banks under severe economic conditions. The test will simulate a deep global recession featuring a 10% unemployment rate, plunging real estate prices, and corporate debt market stress.
Additionally, the Board decided to maintain existing capital buffer requirements until 2027, allowing for public input and model improvements. The move aims to enhance the reliability and fairness of supervisory models while ensuring large banks can continue supporting households and businesses during financial stress.
Key Points :
The Federal Reserve has finalized its annual stress test scenarios for 2026, which will assess how 32 large banks would withstand a severe global recession.
The scenarios project a sharp rise in unemployment (up to 10%), significant declines in real estate (30% home price drop, 39% commercial real estate drop), and severe market volatility.
Banks with large trading or custodial operations will also face additional shock tests, including a global market shock and a counterparty default scenario.
The Fed voted to keep current stress capital buffer requirements unchanged until 2027, allowing time to incorporate public feedback and refine models.
Vice Chair for Supervision Michelle W. Bowman emphasized that this pause will improve transparency, fairness, and accountability in the stress testing process.
The stress test is not a forecast but a hypothetical exercise to ensure banks remain resilient and able to lend during economic downturns.
