The Federal Reserve has proposed that annual bank stress-testing scenarios be open to public comment for the first time. In a new insight, Director of Financial Services Policy Thomas Kingsley explains the purpose of stress-testing and discusses the significance of introducing a public comment process as well as the potential ramifications.

He concludes:

Stress testing has become a cornerstone of post-crisis financial regulation, shaping supervisory oversight, informing market expectations, and improving risk management across the banking sector. The proposal to solicit public comment on the scenarios marks a potentially transformative shift—one that could enhance transparency and invite broader participation but also raises questions about incentives, supervisory discretion, and the purpose of the tests themselves. As regulators consider how to implement this change, they must confront a deeper question about what stress testing should ultimately achieve and how it can best contribute to long-term financial resilience.

Read the analysis.