DFAST reform would negatively impact 75% of tested banks

Key facts

• The Federal Reserve's proposed DFAST averaging reform would negatively impact 75% of tested banks.
• The reform affects banks in 2025 and 2026.
• The reform alters the stress capital buffer calculation by averaging results over two years.
• The Basel III framework introduces an output floor.
• The output floor is diminishing the popularity of internal credit risk models used by EU banks.
• The shift is towards standardized metrics for capital requirements.

The Federal Reserve's proposed DFAST averaging reform is expected to have a significant negative impact on a majority of banks. Analysis indicates that nearly three-quarters of banks tested in both 2025 and 2026 would face higher capital depletion under this new proposal. The reform specifically alters the calculation of the stress capital buffer by averaging results over a two-year period, a change that could necessitate increased capital reserves for many institutions.