Senators Urge Fed to Rescind Stress Testing Proposals

Sen. Elizabeth Warren and Rep. Maxine Waters urged Federal Reserve Vice Chair for Supervision Michelle Bowman to rescind proposals that would weaken bank stress testing frameworks.

In a letter to the Vice Chair, the Senators said three Fed proposals would undermine the stress testing framework: (i) the proposal to publicize internal testing models, which, they argued, would allow large banks to engineer their balance sheets to limit projected losses without reducing actual risk; (ii) the proposal to allow banks to help shape the economic scenarios used in stress tests - effectively letting banks choose the exam questions while receiving the answer key; and (iii) the proposal on credit, market, and operational risk models that would rely on more optimistic assumptions, including replacing regional variables with national ones and shortening liquidity horizons.

The Senators cited the failure of the Office of Federal Housing Enterprise Oversight’s (“OFHEO”) stress testing program for Fannie Mae and Freddie Mac as a cautionary precedent. They said that in that example, the OFHEO was required by law to fully disclose its models and scenarios - and gave both firms a clean bill of health before they were placed into conservatorship which ultimately led to a $187.5 billion bailout.

The Senators requested responses by May 12, 2026, to several questions as to:

• what incentives exist at banks to accurately identify - or downplay - real-world shocks;
• how greater predictability undermines stress test utility;
• what had changed since the Fed previously warned that model disclosure could produce a “model monoculture” among firms; and
• whether the Fed conducted a holistic review of cumulative capital-weakening changes, including to the stress testing regime, supplementary leverage ratio, Basel III endgame, and global systemically important bank (“GSIB”) surcharge.