Investing.com -- The Federal Reserve posted two speeches by Vice Chair Michelle Bowman on Monday, covering stress testing and Silicon Valley Bank's failure, according to Wells Fargo.

The firm said the stress testing speech holds more significance for bank investors as the Fed will provide substantially higher granularity with its annual stress tests. This approach can help banks better understand their cost of goods sold compared to the previous method.

The Fed will provide full disclosure of its stress test model and scenarios and create a forum for public comments. The central bank will also offer more details on how macro variables affect its models beyond unemployment and housing.

The effective date for each year's new stress capital buffer will shift to January 1 from the current October 1. SCB averaging was previously introduced but will be applicable starting in 2027.

Proposed changes to the 2027 model include new noninterest income formulas that should better capture business-mix diversity across firms. The Fed is also considering dual global market shock scenarios and freezing balance sheets at a set date before scenario release.

The Fed will consider adding risk scenarios similar to those relevant to SVB, encouraging two-way dialogue on bank stress tests, and conducting reverse stress testing designed by banks.

A Fed-commissioned independent study on Silicon Valley Bank's failure in March 2023 found that Fed staff knew or should have known of issues 12 months before the failure but did not act due to a "culture of risk aversion" and "a lack of clarity regarding decision rights." The failure resulted from unrealized securities losses, 94% uninsured deposits, and poor discount-window readiness.

The Fed has issued new supervisory principles favoring prompt action and monthly escalation reports.