Stress tests and small business lending

By K. Cortes, Yuliya Demyanyk, Lei Li, Elena Loutskina, Philip E. Strahan. Journal of Financial Economics, 2018

174 citations recorded by the source corpus.

Post-crisis stress tests have altered banks’ credit supply to small business. Banks affected by stress tests reduce credit supply and raise interest rates on small business loans. Banks price the implied increase in capital requirements from stress tests where they have local knowledge, and exit markets where they do not, as quantities fall most in markets where stress-tested banks do not own branches near borrowers, and prices rise mainly where they do. These reductions in supply are concentrated among risky borrowers. Stress tests do not, however, reduce aggregate credit. Small banks increase their share in geographies formerly reliant on stress-tested lenders.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/546e3f5873ddf495824a8b57872cb7a828edaf43