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Stress tests and small business lending

Kristle Cortes, Yuliya Demyanyk, Lei Li, Elena Loutskina and Philip E. Strahan

Journal of Financial Economics, 2020, vol. 136, issue 1, 260-279

Abstract: Post-crisis stress tests have altered banks’ credit supply to small business. Banks most affected by stress tests reallocate credit away from riskier markets and toward safer ones. They also raise interest rates on small loans. Quantities fall most in high-risk markets where stress-tested banks own no branches, and prices rise mainly where they do. The results suggest that banks price the stress-test induced increase in capital requirements where they have local knowledge, and exit where they do not. Stress tests do not, however, reduce aggregate credit. Small banks seem to increase their share in geographies formerly reliant on stress-tested lenders.

Keywords: Stress tests; Small business lending; Financial crisis (search for similar items in EconPapers)
JEL-codes: G28 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Stress Tests and Small Business Lending (2018) Downloads
Working Paper: Stress Tests and Small Business Lending (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:136:y:2020:i:1:p:260-279

DOI: 10.1016/j.jfineco.2019.08.008

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