Stressed Banks

Diane Pierret and Roberto Steri
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Roberto Steri: University of Lausanne and Swiss Finance Institute

No 17-58, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We investigate the risk taking incentives of "stressed banks" — the banks that are subject to annual regulatory stress tests in the U.S. since 2011. We document that stress tests effectively encourage prudent investment from stressed banks through regulatory monitoring, but also provide them with steeper risk-taking incentives through tighter capital requirements. Our results highlight the importance of regulatory monitoring of banks' portfolios in parallel to setting more stringent capital requirements.

Keywords: Capital Regulation; Dodd-Frank Act; Regulatory Monitoring; Stress Tests (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Pages: 82 pages
Date: 2017-11
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1758

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