Stress testing effects on portfolio similarities among large US Banks
Falk Bräuning and
Jose Fillat ()
No 19-1, Current Policy Perspectives from Federal Reserve Bank of Boston
We use an expansive regulatory loan-level dataset to analyze how the portfolios of the largest US banks have evolved since 2011. In particular, we analyze how the commercial and industrial and commercial real estate loan portfolios have changed in response to stress-testing requirements stipulated in the 2010 Dodd-Frank Act. We find that the largest US banks, which are subject to stress testing, have become more similar since the current form of the stress testing was implemented in 2011. We also find that banks with poor stress test results tend to adjust their portfolios in a way that makes them more similar to the portfolios of banks that performed well in the stress testing. In general, stress testing has resulted in more diversified bank portfolios in terms of sectoral and regional distributions. However, we also find that all the large US banks diversified in a similar way, creating a more concentrated systemic portfolio in the aggregate.
Keywords: concentration; systemic risk; portfolio similarity; stress tests; bank correlations (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 40 pages
New Economics Papers: this item is included in nep-ban and nep-rmg
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