The effects of the EBA's stress testing framework on banks' lending

Kasim Ahmed and Giovanni Calice

Economic Modelling, 2024, vol. 132, issue C

Abstract: This paper investigates the impact of the European Banking Authority (EBA)'s supervisory stress tests on bank lending. Using a sample of 282 European banks over the period 2006–2018, we find that stress-tested banks experience higher credit risk and reduce lending for specific loan types. In particular, due to country heterogeneities, we find that the contraction in lending is more pronounced for stress-tested banks in the GIIPS region. Our results also suggest that the elevated credit risk of highly-exposed stress-tested banks can be a driving factor of a reduction in bank lending. Consequently, prudential measures requiring banks to hold higher capital buffers are justified to contain credit risk shocks.

Keywords: Stress test; Macroprudential policy; EU banking system; Bank lending; Credit risk (search for similar items in EconPapers)
JEL-codes: G20 G21 G28 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:132:y:2024:i:c:s0264999323004364

DOI: 10.1016/j.econmod.2023.106624

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