Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
The Impact of Post Stress Tests Capital on Bank Lending
We investigate one channel through which the annual bank stress tests, as part of the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) review, could unexpectedly affect the provision of bank credit. To quantify the impact of the stress tests on lending, we compare the capital implied by the supervisory stress tests with the level of capital implied by the banks’ own models, a measure we call the capital gap. We then study the impact of the capital gap on the loan growth of BHCs subject to supervisory or bank-run stress tests. Consistent with previous results in the bank capital literature, we find evidence that better capitalized banks have higher loan growth. The additional capital implied by the supervisory stress tests (capital gap) does not appear to unduly restrict loan growth.
Cite this item
William F. Bassett & Jose M. Berrospide, The Impact of Post Stress Tests Capital on Bank Lending, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2018-087, 21 Dec 2018.
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Keywords: Bank capital ; Bank lending ; Regulatory capital ; Stress tests
This item with handle RePEc:fip:fedgfe:2018-87
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