The Effects of the Stress-Testing Exercises on Banks’ Lending, Profitability and Risk-Taking : Are There Unintended Side Effects?
This research aims to investigate whether the stress-testing exercises affect credit supply, banks' profitability and risk-taking behaviour. The granular confidential supervisory data of Euro Area banks allows for a quasi-natural experiment to identify this impact with a difference-in-differences matching estimator. We find that, as a consequence of the 2016 stress-testing exercises, treated banks increase their capital ratios by reducing their lending and risk-taking to households and non-financial corporates, implying a decrease in banks' profitability. Results support the hypothesis that the implementation of the stress-testing framework could have a positive disciplining effect by reducing banks' risk-taking while having also an adverse impact on the real economy through a temporary decrease in credit supply and profitability. Results are stable for different specifications and were validated by the parallel trend test and a supplementary regression approach. In addition, we provide an analysis focused on stress-testing results publicly available (versus not available), suggesting that the disclosure of the stress test results reinforces the supervisory and market discipline
Year of publication: |
2019
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Authors: | Cappelletti, Giuseppe |
Other Persons: | Melo Fernandes, Cecilia (contributor) ; Ponte Marques, Aurea (contributor) |
Publisher: |
[2019]: [S.l.] : SSRN |
Subject: | Kreditgeschäft | Bank lending | Bankrisiko | Bank risk | Rentabilität | Profitability | Bank | Bankgeschäft | Banking services | Risikopräferenz | Risk attitude |
Saved in:
freely available
Extent: | 1 Online-Ressource (27 p) |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 30, 2019 erstellt |
Other identifiers: | 10.2139/ssrn.3478913 [DOI] |
Classification: | E44 - Financial Markets and the Macroeconomy ; E51 - Money Supply; Credit; Money Multipliers ; E58 - Central Banks and Their Policies ; G21 - Banks; Other Depository Institutions; Mortgages ; G28 - Government Policy and Regulation |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012860167