Goldman Sachs Group (GS), Morgan Stanley (MS), Citigroup (C), Capital One (COF), and M&T Bank (MTB) could see "material" impacts from the Federal Reserve's newly proposed changes to the annual stress test, UBS said in a note Monday.

Analysts, including Erika Najarian, said while the changes appear minor on the surface, there are two larger implications. First, the timing -- coming before Michelle Bowman's confirmation as vice chair of Supervision-- shows how quickly the administration can act on regulatory priorities, signaling a shift toward potential deregulation. Second, the proposal hints at broader future reforms. The Fed is asking for public feedback on deeper changes, such as adjusting how Pre-Provision Net Revenue, or PPNR, is measured, which in the Fed's words "would improve the calculation of the firm's stress capital buffer requirement."

For example, the Fed wants to separate variable compensation, which can be reduced in a downturn, from fixed salaries. This change would benefit investment banks like Goldman Sachs and Morgan Stanley, the analysts said, adding that, surprisingly, the Fed has not proposed removing non-recurring expenses from the stress test models -- something that could benefit a bank like Citigroup.

The analysts said that overall, this proposal could mark the beginning of more substantial changes to the stress test framework. These adjustments could reduce unnecessary capital buffers and "will be a material step to unlocking excess capital." The banks that stand to benefit the most from these changes include Goldman Sachs, Morgan Stanley, Citigroup, Capital One, and M&T Bank.

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