Stress Tests and Small Business Lending

55 Pages Posted: 6 Mar 2018

See all articles by Kristle Romero Cortés

Kristle Romero Cortés

UNSW Australia Business School, School of Banking and Finance

Yuliya Demyanyk

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Lei Li

Federal Reserve Board

Elena Loutskina

University of Virginia - Darden School of Business

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018

Abstract

Post-crisis stress tests have altered banks’ credit supply to small business. Banks affected by stress tests reduce credit supply and raise interest rates on small business loans. Banks price the implied increase in capital requirements from stress tests where they have local knowledge, and exit markets where they do not, as quantities fall most in markets where stress-tested banks do not own branches near borrowers, and prices rise mainly where they do. These reductions in supply are concentrated among risky borrowers. Stress tests do not, however, reduce aggregate credit. Small banks increase their share in geographies formerly reliant on stress-tested lenders.

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Suggested Citation

Cortés, Kristle Romero and Demyanyk, Yuliya and Li, Lei and Loutskina, Elena and Strahan, Philip E., Stress Tests and Small Business Lending (March 2018). NBER Working Paper No. w24365. Available at SSRN: https://ssrn.com/abstract=3134262

Kristle Romero Cortés (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Yuliya Demyanyk

Federal Reserve Banks - Federal Reserve Bank of Cleveland

East 6th & Superior
Cleveland, OH 44101-1387
United States

Lei Li

Federal Reserve Board ( email )

1801 K Street NW
Washington, DC 20036
United States

Elena Loutskina

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-243-4031 (Phone)

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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