Stressed Banks

82 Pages Posted: 8 Nov 2017 Last revised: 4 May 2018

Diane Pierret

HEC - University of Lausanne; Swiss Finance Institute

Roberto Steri

University of Lausanne; Swiss Finance Institute

Date Written: April 17, 2018

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

JEL Classification: G01, G21, G28

Suggested Citation

Pierret, Diane and Steri, Roberto, Stressed Banks (April 17, 2018). Swiss Finance Institute Research Paper No. 17-58. Available at SSRN: https://ssrn.com/abstract=3066403 or http://dx.doi.org/10.2139/ssrn.3066403

Diane Pierret (Contact Author)

HEC - University of Lausanne ( email )

Institute of Banking and Finance
Unil Dorigny, Batiment Extranef
Lausanne, 1015
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Roberto Steri

University of Lausanne ( email )

Lausanne, Vaud CH-1015
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
275
rank
100,794
Abstract Views
1,242
PlumX