Category: 3. Business

Countries are giving multinational corporations an average 63% tax discount on profits generated from intellectual property.¹ The size of the discount is proportionally the same as allowing workers to not pay income tax for seven months of the year.

Countries offering the tax discount are giving away at least US$29 billion of their own tax revenue each year.² At the same time, they globally cost other countries US$84 billion in tax losses a year, as multinationals respond to the tax discount with abusive profit shifting out of countries where they have their real operations.³

Alex Cobham, chief executive at the Tax Justice Network said:

“Imagine telling the government it can’t tax your wages because you once studied abroad, or better yet, because you’ve stored your diploma in a drawer in another country. Now imagine the government accepting this and letting you not pay tax for seven months of the year. December would be very different for you and your family if you got to stop paying tax on your wages back in May.

“This isn’t too far off from how multinational corporations exploit the ‘pay-where-you-say’ approach that countries have been using to tax multinationals for over 100 years. We need to replace this with a ‘pay-where-you-play’ approach that taxes multinationals where they employ workers and sell goods and services. Countries at the UN have committed to doing just this with a new UN tax convention.”

The large tax discounts are a result of special tax rules known as “patent box” rules.

Alex Cobham said:

“What these special tax rules do is allow multinational corporations to say that their profits weren’t made by workers selling and customers buying goods and services, but by assets they own. That means the profits must be taxed where the assets have been located, which just happens to be in corporate tax havens.”

The justification for the special deal is that the tax giveaways are supposed to incentivise multinational corporations to encourage innovation locally, such as developing new vaccines in local labs. But multinational corporations typically move their patents out of the places where they develop them and into corporate tax havens to underpay tax.

An example is pharma company GSK, which registered drugs it developed, manufactures and markets largely outside the UK under the UK’s patent box rules. Investigators at TaxWatch found that in 2024 alone, GSK gained a £486 million tax discount in the UK from patent box rules meant to incentivise innovation in the UK applied to drug patents that at least some of which GSK had developed outside the country.⁴ This tax discount was larger than the entire annual budget that year of the Biotechnology & Biological Sciences Research Council, the UK government’s main funding arm for bio-science innovation .

The tax discount doesn’t just cause the UK to give up huge sums of tax revenue, but also forces the countries where those drugs are being manufactured to forgo the revenues.

Alex Cobham said:

“If you’re buying someone a smartwatch this Christmas, you’ll pay with your taxed income and pay VAT. But the multinational profiting from your purchase likely won’t get taxed properly, if at all, because governments must abide by the make-believe that the profit arises in the tax haven where the smartwatch’s patent is registered, not in the country where you bought the smartwatch nor in the country where it was built or designed.”

The Tax Justice Network’s findings come as countries at the UN negotiate an end to this costly, globally-enforced make-believe.

Exploiting patent box rules is just one instance of how multinational corporations exploit the 100-year-old “pay-where-you-say” approach at the heart of the global tax system, which the Tax Justice Network argues must be replaced with a “pay-where-you-play” approach.⁵

The “pay-where-you-say” approach – adopted by the League of Nations in the 1920s and dating back to a time when most households didn’t have electricity and most countries were colonies – taxes multinationals corporations based on where they declare their profits. Modern multinational corporations, which are very different to international corporations from the 1920s, exploit this approach by moving their profit out of the countries where they make it and into corporate tax havens before they declare it, resulting in countries losing US$348 billion in corporate tax a year⁶. Exploiting patent box rules is one of the many levers multinationals use to move their profit out of countries.

In contrast, the “pay-where-you-play” approach taxes multinational corporations based on where they do business. That is, where they employ workers and make and sells goods and services to make their profit – regardless of where they declare the profit in the end.

Countries at the UN have already committed to replacing the “pay-where-you-say” approach with a new approach based on a “fair allocation of taxing rights” as part of the new UN tax convention being negotiated. In last month’s negotiations, countries focused on what alternative approaches might look. Most countries backed the latest draft text of the convention, which sets out a “pay-where-you-play” approach.⁷

The Tax Justice Network finds that 42 countries have patent box rules, or are fully exempting multinational corporations from paying tax, out of the sample of 70 countries monitored on the Tax Justice Network’s Corporate Tax Haven Index – which is a ranking of countries most complicit in helping multinational corporations underpay tax.⁸ The findings are part of the latest rolling update to the index, which saw little change in countries’ regulations and standings since 2024.⁹ The top 10 ranking jurisdictions today are: British Virgin Islands (1st), Cayman Islands (2nd), Switzerland (3rd), Bermuda (4th), Singapore (5th), Hong Kong (6th), Netherlands (7th), Jersey (8th), Ireland (9th) and Luxembourg (10th).

If countries were to eliminate their patent box rules, they would on average drop 1 place on the ranking as a result of the single regulatory change, and reduce their contribution to global corporate tax abuse by 12%.

They would also recover the billions in tax that are given up every year under patent box rules. Those with the most to gain are the US, the UK and the Netherlands. The US would drop 2 places and gain US$15.9 billion in tax; the UK would drop 1 place and gain £2.3 billion; the Netherlands would drop 1 place and gain €2.4 billion.¹⁰

Tax experts and campaigners like the Tax Justice Network argue that tax incentives better support innovation and cut out tax abuse when they are applied to costs, rather than to profits the way patent boxes are. Subsidising the costs of research and development more effectively reduces barriers to innovation than the promise of a bigger payout. This directly boosts job creation and local economic activity. When tax incentives are applied to just costs, they provide a benefit only when and where a cost is incurred, leaving no benefit to be gained by shifting profit into tax havens.

-ENDs-

Notes to editor

1. 42 countries were found to have patent box rules, or to be fully exempting multinational corporations from paying tax, out of the sample of 70 countries monitored on the Tax Justice Network’s Corporate Tax Haven Index, who together host 87% of global foreign direct investments. Their patent box rules on average permit multinational corporations to pay a tax rate on profit designated as derived from intellectual property that is 63% lower than the statutory corporate tax rate. Please note that an advanced version of the press release shared with some ahead of the launch of the Corporate Tax Haven Index erroneously said 40 countries were found, leaving out 2 countries out of the assessment. This error has been corrected. The addition of the two countries into the assessment has not resulted in noticeable changes to the key figures presented in the advanced version of the press release.
2. Only 13 countries report statistics on the tax revenues they forgo to patent box rules. In order of the biggest to smaller losers, these are the US ($16bn), the UK (£2.3bn), the Netherlands (€2.4bn), France (€1.2bn), Belgium (€638mn), Cyprus (€205mn), Spain (€51mn), Hungary (HUF14bn), Lithuania (€24.6), Ireland (€24mn), Portugal (€9mn), Greece (€2mn) and Slovakia (€0.9mn). The statistics can be found on the Global Tax Expenditures Database (GTED). Together these countries forgo $23.8 billion in tax a year. Using available cross-border royalty flows to assess forgone revenues for countries offering patent boxes but not reporting statistics on the tax revenues they forgo, we estimate revenue forgone from Patent Boxes and similar IP exemption regimes to be at US$29 billion, across the 32 countries covered in the Corporate Tax Haven Index. We use the World Trade Organisation (WTO) Balanced Trade in Services (BaTiS) dataset (updated February 2025) to extrapolate revenue forgone from lower or no-CIT IP regimes. Starting from the amount of “Charges for the use of intellectual property n.i.e” received by each country, we then calculate the hypothetical tax revenue if such income was taxed at the statutory rate, as well as the (lower) tax revenue resulting from the application of preferential tax regimes applicable to IP income. The difference between both amounts of tax revenue is an approximation of revenue forgone. Extrapolation was not possible for one jurisdiction, Andorra, due to the absence of data in the BaTiS dataset.
3. See this excel sheet for more information.
4. See TaxWatch’s October 2025 report, The great pharma tax giveaway.
5. Arguably, the most consequential feature of the current global tax system was established in the 1920’s by the League of Nations. This is the “arm’s-length-principle” which has served as the basis on which multinational corporations are taxed for a century. The principle treats the individual parts of a multinational corporation – its subsidiaries, headquarter, holding companies, etc – as separate businesses and taxes them separately. Each country taxes the parts located within its borders. This is the key principle that multinational corporations exploit when they shift profits out of one part of the corporation in one country and to another part in a corporate tax haven in order to underpay tax. We refer to this approach to tax as “pay-where-you-say” because it taxes multinational corporations based on where they declare their profits on paper – which can often be in a corporate tax haven where the only presence the corporation has is a mailbox it rents. The alternative to this approach is unitary taxation with formulary apportionment. This approach treats all the parts of multinational corporation as one entity, and requires the corporation to be taxed on the profit it makes as whole. Each country in which the multinational corporation operates – where it employs workers, makes goods and services and sells them – taxes a slice of the profits. The size of this slice is proportional to the slice of the multinational corporation’s operation that takes place within the country’s borders. So if a quarter of a multinational corporation’s workforce and sales are in Kenya, then a quarter of all the profit it declares, wherever it declares it, must be taxed by Kenya. Kenya taxes this profit in accordance with its corporate tax rate. We refer to this approach as “pay-where-you-play”. By requiring a multinational corporation’s profits to be proportionally taxed across the countries where it genuinely does real business, where each country can tax its allotted share of profit as it sees fit, unitary tax makes corporate tax havens redundant. A corporate tax haven may still choose to have a corporate tax rate of 0%, but if a multinational corporation doesn’t do real business in the tax haven and only rents a mailbox there, the share of the multinational’s profit that the tax haven can tax will be very small to non-existent. The OECD’s failed two-pillar proposals sought to narrowly implement unitary tax on a very few multinational corporations, but with deeply biased rules for how proportionality would be allotted that benefitted the richest countries and European tax havens. The UN has committed to a “fair allocation of taxing rights” in the Terms of Reference of the UN Framework Convention on International Tax Cooperation, which is broadly understood to be best achieved by replacing the arms-length principle (pay where you say) with unitary tax (pay where you play).
6. See the State of Tax Justice 2024 for more information on countries’ tax losses to global tax abuse.
7. Most countries — particularly from the global south — backed the latest text of Article 4, which holds that a state should have the right to tax a multinational’s profits when the multinational has meaningful economic activity in that jurisdiction. Article 4 would, in effect, flip the basis of the international tax system to a “pay-where-you-play” approach. More information about the UN tax convention negotiations, including a summary of what countries said in negotiations specifically on the commitment to a fair allocation of taxing rights, is available here.
8. The Corporate Tax Haven Index ranks countries on how complicit they are in helping multinational corporations underpay corporate income tax in other countries. It does this by evaluating how much wiggle room for corporate tax abuse a country’s laws and regulations provide, and by monitoring how much financial activity conducted by multinational corporations enters and exits the country. This two-factor approach of assessing both laws and activity allows the index to rank countries on the relative risks their laws pose to others in practice and not just in theory, unlike most tax haven “blacklists”.
9. The Corporate Tax Haven Index is updated on a rolling basis in batches. Each batch include updates to a set of indicators, with the latest batch – published today – updating the index’s indicators on Capital Gains Taxation​, Loss utilisation, Fictional interest deduction and Patent boxes. This latest update sees minimal changes in countries regulations on these specific indicators, and few movements on the ranking. The update includes the latest figures on how much financial activity conducted by multinational corporations enters and exist each country on the index. These figures on their own are a neutral factor. Having more or less financial activity entering or exiting is neither good nor bad, but the greater the activity the greater the responsibility a country has to ensure its regulations do not enable cross-border tax abuse. Due to the minimal regulatory change, the few ranking movements on the ranking are mostly driven by changes in financial activity.
10. See note 2.
11. On 25 November, the OECD released its annual update of its Corporate Tax Statistics, which included a section on tax incentives for research and development. The launch was accompanied by a blog post discussing “income-based R&D tax incentives”, that is, profit-based incentives for R&D, which largely overlaps with our update today to the patent box regimes indicator on the Corporate Tax Haven Index. The OECD also made available their database of the reduced rates offered under these regimes.Comparing the Tax Justice Network’s evaluations of jurisdictions patent box rules against the OECD’s evaluations of the same jurisdictions, we find that the OECD fails to identify almost a third (29%) of jurisdictions that the Tax Justice Network found to be offering tax incentives that enable patents and intellectual property to be used to shift profit. Apart from technical differences in effective tax rate calculations (which concerns mainly Switzerland, Greece and Portugal), this shortcoming is largely due to the OECD’s disregard of concurrent harmful tax rules that compound or replicate the harmful impacts of patent box rules. The jurisdictions missed by the OECD evaluation fall into two categories.First are jurisdictions that have zero or no corporate income tax rates namely, Anguilla, Turks and Caicos Islands, Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man and Jersey. These jurisdictions are just as readily used for registering patents and consequently shifting profit and abusing corporate tax in other jurisdictions. The OECD exempts these jurisdictions from its evaluation of places offering profit-based tax incentives for patents and intellectual property, since they have no tax rate to begin with to offer exemptions on. In contrast, the Tax Justice Network does identify these jurisdictions, which highlights the difference of outlook between the two organisation’s research approaches. While on paper, these jurisdictions’ tax rules do not provide harmful incentives on patents, in practice their tax rules deliberately encourage the use of patents and intellectual property, among other things, to shift profit out of other jurisdictions.

    Second are jurisdictions that allow a 0% or near-0% corporate income tax rate under specific circumstances, which when used in conjunction with patents or intellectual property, enable patents to be used to shift profit and abuse corporate tax. The OECD’s evaluations disregard the presence of these rules in its identification of jurisdictions that provide profit-based incentives on patents. For instance, 6 jurisdictions fully exempting foreign IP income are disregarded from the OECD assessment of IP tax regimes (Aruba, Costa Risa, Hong Kong, Liberia, Singapore, Seychelles), insofar as the 0% tax rate effectively applicable to foreign IP income is not considered by the OECD. The same happens with tax systems that de facto allow for full or nearly full exemption from CIT under specific (yet broadly applicable) circumstances. Indeed, the OECD disregards 0% or near 0% tax rates available for IP income accrued by resident companies for at least 5 countries (Cyprus, Estonia, Latvia, Romania, United Arab Emirates).

    Both the first and second category, into which most unidentified jurisdictions fall, are cases where a jurisdiction’s tax rules are designed in a way that enables profit-based incentives on patents without having a specific tax rule on patents. While these can be said to be a difference in perspective between the OECD and Tax Justice Network, to countries working to tackle cross-border corporate tax abuse costing them billions every year, the OECD’s approach leaves a significant blind spot.

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By Christine Idzelis

‘Crash insurance’ for the S&P 500 is ‘somewhat expensive’ even after its sharp rebound last week, says Garrett DeSimone of OptionMetrics

The U.S. stock market fell Monday.

The U.S. stock market kicked off December in the red, with the S&P 500 off to a shaky start to the month after its big bounce last week erased its November losses.

The S&P 500 was set up for a post-Thanksgiving “hangover,” after ripping back to its 6,850 “resistance” level last week, said Jonathan Krinsky, chief market technician at BTIG, in a note Monday. “While December may very well close green, just as November did, the path to get there is likely to be quite volatile yet again.”

The S&P 500 SPX fell 0.5% on Monday to end at 6,812.63, according to FactSet data. That’s after finishing a bumpy November with a 0.1% gain.

Options-trading activity suggested traders remain jittery, as insurance against a sharp fall for the S&P 500 in the near term is “somewhat expensive,” with the cost of protection rising steadily since mid-November, said Garrett DeSimone, head of quantitative research at OptionMetrics, in a phone interview Monday.

That’s despite his research showing “crash insurance on megacap tech names has gotten cheaper” since then, he said, explaining it’s likely because investors remain concerned about the outsized exposure of so-called Magnificent Seven stocks in the S&P 500 index. A drop in those S&P 500 heavyweights risks dragging down the U.S. equities index.

Meanwhile, the Roundhill Magnificent Seven ETF MAGS – an exchange-traded fund that holds seven Big Tech stocks including Apple Inc. (AAPL), Microsoft Corp. (MSFT), Google parent Alphabet Inc. (GOOGL) (GOOG), Nvidia Corp. (NVDA), Amazon.com Inc. (AMZN), Tesla Inc. (TSLA) and Meta Platforms Inc. (META) – fell in November to snap seven straight months of gains, according to FactSet data.

While the S&P 500 eked out a tiny gain last month, its information-technology sector XX:SP500.45 and the tech-heavy Nasdaq Composite COMP each saw their first monthly drops since March, according to FactSet data.

See related: Tech on pace to snap seven straight months of gains as AI fuels bubble fears

The cost of protecting against a big near-term drop in Magnificent Seven stocks reflects “a fairly moderate level of risk” and the potential for choppiness in shares of those Big Tech companies, according to DeSimone.

To help gauge fears of the stock market potentially tanking in the near term, DeSimone explained that he looks at the price of “deep out-of-the-money” put options over a five-day period. Weekly options indicate “how expensive it is to hedge very short-term crashes,” he said.

A put option contract gives a trader the right to sell shares at a specified price by a set date. Investors may use puts to potentially profit on their bet that those shares may decline or to hedge against a drop in their portfolio.

AI theme

On Monday, the Roundhill Magnificent Seven ETF, which seeks to equally weight its Big Tech holdings, slipped 0.1%, failing to extend its bounce in the final week of November. The ETF jumped 5.2% last week, but still finished November with a 1.8% loss, according to FactSet data.

In DeSimone’s view, the stock market recently rallied as traders in the fed-funds futures market began pricing in a “strong increase” in the probability of an interest-rate cut by the Federal Reserve at its upcoming policy meeting next week. Some of “the downside risk has tapered off in the large-cap tech names,” he said, but “bubble fears” remain in the wake of the market’s boom on artificial-intelligence enthusiasm.

Check out: Are Oracle bears too pessimistic? This analyst thinks the stock can rise 90%.

Wall Street’s so-called fear gauge, the Cboe Volatility Index VIX, rose more than 5% on Monday to around 17.2, according to FactSet. Still, that’s below the measure’s long-run average of around 20, suggesting the bull market in U.S. stocks remains intact.

Meanwhile, the CNN Fear & Greed Index still was registering “extreme fear” in the stock market on Monday, although the reading has improved from a week ago, data from the gauge on CNN’s website shows.

“In our view, recent market actions reflect more market churn than broad weakness or a major rotation into defensive sectors,” said Douglas Beath, global investment strategist at Wells Fargo Investment Institute, in a note Monday. “Whether or not the Fed cuts rates in December, we expect rate cuts in 2026,” potentially benefiting stocks along with expected tax cuts and deregulation, he wrote.

Wells Fargo Investment Institute is “constructive on the AI theme and would suggest using market pullbacks to rebalance into ancillary technology trends with more attractive valuations,” such as financials, utilities and industrials, according to Beath.

The U.S. stock market closed lower Monday, with the Dow Jones Industrial Average DJIA and Nasdaq Composite COMP posting losses alongside the S&P 500. The Dow dropped 0.9% while the Nasdaq shed 0.4%.

-Christine Idzelis

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

  (END) Dow Jones Newswires

  12-01-25 1737ET
Copyright (c) 2025 Dow Jones & Company, Inc.

Following patients with psoriasis for up to 5 years after initiating adalimumab, researchers found meaningful improvements across work ability, everyday activity levels, and health-related quality of life, according to one study.¹ These findings highlight the broad, long-term benefits of adalimumab beyond clinical symptom control.

This single-arm, multicenter, noninterventional, German-based cohort study is published in the Journal der Deutschen Dermatologischen Gesellschaft.

“Our study demonstrated in a large real-world population that long-term treatment of up to 5 years with adalimumab in adult patients with psoriasis led to a sustained improvement in the practice of professional and, in particular, nonprofessional activities,” wrote the researchers of the study.

Psoriasis profoundly affects quality of life, extending beyond physical symptoms to cause psychological distress, social stigma, and daily functional limitations.² Patients often experience depression, anxiety, and social withdrawal, which can occur regardless of disease severity and negatively impact work, relationships, and adherence to treatment. Studies show that up to 1 in 5 individuals with psoriasis experience mental health challenges, highlighting the need for holistic, patient-centered care that addresses both the physical and psychosocial burden of the disease.

This study collected routine care data from adult patients in Germany with psoriasis who initiated adalimumab treatment.¹ Participants were followed for up to 5 years, allowing researchers to capture long-term, real-world outcomes beyond controlled trial settings. Data were documented at baseline and during regular follow-up visits, including measures of work ability, restrictions in non-professional activities, disease severity, and health-related quality of life. This design enabled an assessment of how adalimumab influenced both clinical and everyday functional outcomes over time.

The study analyzed baseline and follow-up data from 4793 patients, most of whom were male with an average age of 47.5 years. At baseline, patients reported far more days with limitations in nonprofessional activities than in work-related tasks. Over the course of adalimumab treatment, both psoriasis-related days unfit for work and days with restrictions in nonprofessional activities declined significantly. Correlation analyses showed that psoriatic arthritis, higher disease severity (Psoriasis Area Severity Index [PASI] > 10), and greater quality of life impairment (Dermatology Life Quality Index [DLQI] > 10) were strongly linked to increased activity restrictions.

Although health-related quality of life improved throughout the observation period, it remained lower among patients who continued to experience limitations in nonprofessional activities.

However, the researchers acknowledged several limitations. First, it was an observational, single-arm design without a control group, which limited the ability to rule out confounding factors. Second, real-world data can vary due to routine practice conditions, and not all parameters were consistently available, especially as patient numbers declined over time. Lastly, some outcomes, including sick leave days and daily activity impairments, relied on patient recall, which may have introduced bias.

Despite these limitations, the researchers believe the study suggests adalimumab leads to meaningful improvements in patients with psoriasis.

“In conclusion, restraint from nonprofessional activities affects well-being and appears to be an underestimated problem in patients with psoriasis, enhancing the burden of disease,” wrote the researchers. “Adalimumab treatment leads to a sustained and tangible improvement in daily nonprofessional activities of patients with psoriasis and their HRQOL [health-related quality of life]. It was shown for the first time that DLQI is highly associated with restraint from nonprofessional activities in a negative manner. This finding emphasizes the need for early intervention with efficacious therapies and holistic consideration of the social aspects in order to improve patients’ QOL [quality of life].”

References

1. Kokolakis G, Philipp S, Mosch T, Fritz B, Sabat R. Impact of adalimumab treatment on impairment of non-professional activities in psoriasis patients. J Dtsch Dermatol Ges. Published online November 28, 2025. doi:10.1111/ddg.15949

2. Steinzor P. Clinical severity may not correlate with psychological burden of psoriasis, study finds. AJMC®. May 7, 2025. Accessed December 1, 2025. https://www.ajmc.com/view/clinical-severity-may-not-correlate-with-psychological-burden-of-psoriasis-study-finds

Washington, D.C. – The Federal Reserve’s proposed 2026 stress test scenarios reflect a welcome effort to enhance transparency and public accountability, the Bank Policy Institute, American Bankers Association, Financial Services Forum, Securities Industry and Financial Markets Association, International Swaps and Derivatives Association and Institute of International Bankers said in a comment letter submitted today. 

The associations commend the Fed for, for the first time, publishing its proposed 2026 stress test scenarios for public comment and for articulating a more detailed scenario design policy, including guides and a macro model that describe how key variables are calibrated. These actions respond constructively to longstanding calls for the Fed to bring its stress testing models and scenarios into the Administrative Procedure Act’s notice-and-comment framework and reflect a serious effort to increase public insight into the process. Still, the scenarios, which in many cases replicate scenarios from past stress tests and were established before the new Fed guidelines, would benefit from some revisions. For example, the scenarios and associated models that the Federal Reserve uses to design the scenarios often compress the timelines of observed stress periods to achieve peak-level stress calibrations over a shorter number of quarters than is reflected in historical precedents.

Open questions remain on how the Fed will exercise its discretion on scenario design in practice. Greater clarity and firmer guardrails on how that discretion is applied year to year would further bolster the framework’s credibility and ensure that bank capital requirements are based on a coherent and plausible foundation.

“The Enhanced Transparency NPR and the publication of the Proposed 2026 Scenarios for public comment represent an improvement in the overall transparency and accountability of the Federal Reserve’s stress testing processes. However, the proposed framework would grant inordinate discretion to the Federal Reserve, without requiring sufficient explanation for its design choices year-to-year,” the associations stated in the letter.

Background. The Fed on Oct. 24, 2025, issued proposals to increase transparency and accountability in the stress testing process, in line with BPI and co-plaintiffs’ 2024 legal challenge, which called for the Fed to subject its stress testing scenarios and models to public comment under the Administrative Procedure Act.^[1]

• Today’s comment letter responds to the proposed 2026 stress test scenarios.
• A separate comment letter will address the Fed’s broader proposal on the revised framework, including the stress test models and scenario design. The Fed extended the comment deadline on this proposal to Feb. 21, 2026.

Why It Matters. The proposed framework will drive how the central bank establishes binding capital requirements that determine the cost of credit in the economy. The design choices underpinning models and scenarios ultimately drive the cost of loans and financing. With insufficient explanation of design choices, the stress tests could continue to produce volatile results year-to-year, distorting the cost of financial intermediation.

• The stress testing framework is not the sole driver of banks’ capital requirements. Given the interplay between stress tests and other parts of the capital framework, the importance of coherent stress test scenarios is critical.
• Transparency is not simply about disclosing more information, but also about explaining how that information is used in decision-making so that stakeholders can understand and, where appropriate, comment on the choices the Fed makes in scenario design. A clearer articulation of the link between the disclosed guides and models for the final scenario paths would further strengthen the credibility of the framework.

Specific Concerns. The associations highlight several instances where more explanation would be beneficial in the proposed scenarios. For example:

• The Fed has chosen to calibrate variables for which it retains flexibility near or in the upper one-third of their ranges of severity. It does not explain how it arrived at this severe calibration.
• The 2026 severely adverse scenario also results in severe shocks across asset classes simultaneously without appearing to take into account the recent dynamics in these markets. The trajectories of several of the modeled variables reflect deviations from the macroeconomic model that are not described.
• The Global Market Shock, a market risk element applied to banks with large trading operations, provides a significant level of discretion in its methodology. The effect of the Federal Reserve’s chosen percentile level for a specific shock may translate to vastly different severities of the shocks, with direct effects on binding capital requirements for the covered banks. Further explanation is warranted on how the Fed will select the severities of these shocks each year.
• The associations urge the Fed to build on its progress by providing more detail on how it will choose points within the permitted ranges for key variables, including how current economic and financial conditions, historical experience and model outputs inform those choices.

[1] This legal challenge was filed in December 2024 by the Bank Policy Institute, the American Bankers Association, the U.S. Chamber of Commerce, the Ohio Bankers League and the Ohio Chamber of Commerce.

###

About Bank Policy Institute

The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud and other information security issues.

About American Bankers Association

The American Bankers Association is the voice of the nation’s $25.1 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $19.7 trillion in deposits and extend $13.2 trillion in loans.

About Financial Services Forum

The Financial Services Forum is an economic policy and advocacy organization whose members are the eight largest and most diversified financial institutions headquartered in the United States. Forum member institutions are a leading source of lending and investment in the United States and serve millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.

About Securities Industry and Financial Markets Association

SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

About International Swaps and Derivatives Association

Since 1985, ISDA has worked to make the global derivatives markets safer and more efficient. Today, ISDA has over 1,000 member institutions from 78 countries. These members comprise a broad range of derivatives market participants, including corporations, investment managers, government and supranational entities, insurance companies, energy and commodities firms, and international and regional banks. In addition to market participants, members also include key components of the derivatives market infrastructure, such as exchanges, intermediaries, clearing houses and repositories, as well as law firms, accounting firms and other service providers. Information about ISDA and its activities is available on the Association’s website: www.isda.org. Follow us on LinkedIn and YouTube.

About Institute of International Bankers

The Institute of International Bankers (IIB) represents the U.S. operations of internationally headquartered financial institutions from more than 35 countries around the world. The membership consists of international banks that operate branches, agencies, bank subsidiaries, and broker-dealer subsidiaries in the United States. The IIB works to ensure a level playing field for these institutions, which supported $5.4 trillion in foreign direct investment by underwriting more than 70% of debt issuance in the United States by internationally headquartered companies over the last four years. These institutions also underwrote more than 40% of U.S. financing raised since 2020 and comprise the majority of U.S. primary dealers.

Media Contacts

Tara Payne
Bank Policy Institute
media@bpi.com

Josh Britton
American Bankers Association
jbritton@aba.com

Laura Peavey
Financial Services Forum
lpeavey@fsforum.com 

Lindsay Gilbride
Securities Industry and Financial Markets Association
lgilbride@sifma.org

Christopher Faimali
International Swaps and Derivatives Association
cfaimali@isda.org

Jana Conner
Institute of International Bankers
jconner@iib.org