Stress Testing Accountability and Transparency Act

The bill would require the Federal Reserve Board to issue two rules: one establishing the models, assumptions, formulas, and other methodologies used to conduct annual stress tests on large bank holding companies and certain nonbank financial companies; and one setting how the Board calculates a firm's stress capital buffer requirement when it has results from two or more stress test cycles. The Board would have to publish these rules through the notice-and-comment process and could only make material changes to stress test methodologies through that same process. At least 60 days before each stress test, the Board would have to publicly disclose every scenario to be used.

The bill would also bar the Board from running climate-related stress tests under its existing stress-testing authority and would prohibit double-counting capital requirements for the same risks in both the stress capital buffer and standard risk-based capital requirements. The Government Accountability Office would be required to report to Congress every three years on the effectiveness of the stress tests in evaluating the safety of tested firms and the stability of the financial system.

Large bank holding companies and nonbank financial companies subject to Federal Reserve stress testing under the Financial Stability Act of 2010 — generally firms with $100 billion or more in assets. Their capital planning and buffer requirements are directly determined by stress test outcomes. The Federal Reserve Board would face new rulemaking obligations, and the Government Accountability Office would be directed to conduct triennial reviews.

Large banks' required capital cushions — and thus their capacity to lend and return capital to shareholders — are set in part by stress test results. Requiring the Fed to codify its methodology through public rulemaking would give firms advance notice and a formal opportunity to challenge methodology changes, shifting power over a key regulatory lever from examiner discretion toward a more transparent, rule-bound process. The climate stress test ban would remove a contested supervisory tool before it is established.

Within 90 days of enactment, the Board would have to issue a rule establishing stress test models and a stress capital buffer calculation methodology through notice-and-comment rulemaking. Starting the first calendar year after enactment, the Board must publicly disclose stress test scenarios at least 60 days before each test. Any material methodology changes after that would require a new rulemaking cycle. The GAO would conduct its first study covering the three most recent calendar years of stress tests and submit a report to Congress, then repeat every three years.