Search Results
Working Paper
Stressed Banks? Evidence from the Largest-Ever Supervisory Review
We study short-term and medium-term changes in bank risk-taking as a result of supervision, and the associated real effects. For identification, we exploit the European Central Bank's asset-quality review (AQR) in conjunction with security and credit registers. After the AQR announcement, reviewed banks reduce riskier securities and credit supply, with the greatest effect on riskiest securities. We find negative spillovers on asset prices and firm-level credit availability. Moreover, non-banks with higher exposure to reviewed banks acquire the shed risk. After the AQR compliance, reviewed ...
Working Paper
Disclosure of stress test results
Should regulatory bank examinations be made public? Regulators have argued that the confidentiality of the examination process promotes frank exchanges between bankers and examiners and that public disclosure of examination results could have a chilling effect. I examine the tradeoffs in a world in which examination results can be kept confidential, but regulatory interventions are observable by market participants, as they typically are for stress tests. Inducing banks to communicate truthfully requires regulators to engage in forbearance, which is priced into banks? uninsured debt and ...
Journal Article
Should regulators reveal information about banks?
Regulators collect and produce information about banks. This information helps regulators monitor the safety and soundness of the banking system, and it also helps policymakers preserve financial stability. A key issue is whether this information should be made public and, if so, to what extent. In this article, we will explore some of the tradeoffs involved.
Working Paper
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 ...
Working Paper
The Information Content of Stress Test Announcements
We exploit institutional features of the U.S. banking stress tests to disentangle different types of information garnered by market participants when the stress test results are released. By examining the reaction of different asset prices, we find evidence that market participants value the stress test announcements not only for the information on possible future capital distributions but also for the signals about bank resilience. These results back the use of stress tests by central banks to inform the broader public about the soundness of the banking system.
Working Paper
The Effect of U.S. Stress Tests on Monetary Policy Spillovers to Emerging Markets
This paper shows that monetary policy and prudential policies interact. U.S. banks issue more commercial and industrial loans to emerging market borrowers when U.S. monetary policy eases. The effect is less pronounced for banks that are more constrained through the U.S. bank stress tests, reflected in a lower minimum capital ratio in the severely adverse scenario. This suggests that monetary policy spillovers depend on banks? capital constraints. In particular, during a period of quantitative easing when liquidity is abundant, banks are more flexible, and the scope for adjusting lending is ...
Working Paper
Corporate Mergers and Acquisitions Under Lender Scrutiny
This paper examines corporate mergers and acquisitions (M&A) outcomes under lender scrutiny. Using the unique shocks of U.S. supervisory stress testing, we find that firms under increased lender scrutiny after their relationship banks fail stress tests engage in fewer but higher-quality M&A deals. Evidence from comprehensive supervisory data reveals improved credit quality for newly originated M&A-related loans under enhanced lender scrutiny. This improvement is further evident in positive stock return reactions to M&A deals financed by loans subject to enhanced lender scrutiny. As companies ...
Working Paper
Modeling Your Stress Away
We investigate systematic changes in banks' projected credit losses between the 2014 and 2016 EBA stress tests, employing methodology from Philippon et al. (2017). We find that projected credit losses were smoothed across the tests through systematic model adjustments. Those banks whose losses would have increased the most from 2014 to 2016 due to changes in the supervisory scenarios-keeping the models constant and controlling for changes in the riskiness of underlying portfolios-saw the largest decrease in losses due to model changes. Model changes were more pronounced for banks that rely ...