Bank stress testing, human capital investment and risk management

Thomas Schneider, Philip E. Strahan and Jun Yang

Journal of Financial Economics, 2025, vol. 171, issue C

Abstract: This paper studies banks’ investment in risk management human capital following the Global Financial Crisis and the advent of stress testing. Our results suggest that ‘Too Big to Fail’ distortions may have weakened large banks’ incentive to invest in risk management talent. Stress testing, which focuses on the largest banks, spurred demand for skilled quantitative risk managers, but only narrowly in anticipation of a test and following poor performance on a test. Stress testing does not affect demand for the over 90 % of risk management jobs not linked to passing tests, limiting its effectiveness in improving risk management practices.

Keywords: Risk management; Stress tests; Human capital investment (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:171:y:2025:i:c:s0304405x25001126

DOI: 10.1016/j.jfineco.2025.104104

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