Regulatory Stress Testing and Bank Performance

60 Pages Posted: 29 May 2018 Last revised: 30 Apr 2020

See all articles by Lukas Ahnert

Lukas Ahnert

University of St. Gallen

Pascal Vogt

Boston Consulting Group - Germany

Volker Vonhoff

University of Mannheim - Department of Business Administration and Finance

Florian Weigert

University of Neuchatel - Institute of Financial Analysis; University of Cologne - Centre for Financial Research (CFR)

Date Written: May 17, 2018

Abstract

This paper investigates the impact of stress testing results on bank's equity and CDS performance using a large sample of twelve tests from the US CCAR and the European EBA regimes in the time period from 2010 to 2018. We find that passing banks experience positive abnormal equity returns and tighter CDS spreads, while failing banks show strong drops in equity prices and widening CDS spreads. We also document strong market reactions at the announcement date of the stress tests. Although the institutional designs between US and European stress tests differ, we generally observe similar capital market consequences for both regimes. We complement existing studies by investigating the predictability of stress test outcomes and evaluating strategic options for affected banks and investors.

Keywords: Banks, Stress Testing, Equity Performance, CDS Performance

JEL Classification: G00, G21, G28

Suggested Citation

Ahnert, Lukas and Vogt, Pascal and Vonhoff, Volker and Weigert, Florian, Regulatory Stress Testing and Bank Performance (May 17, 2018). Available at SSRN: https://ssrn.com/abstract=3179540 or http://dx.doi.org/10.2139/ssrn.3179540

Lukas Ahnert

University of St. Gallen ( email )

Langgasse 1
St. Gallen, 9008
Switzerland

Pascal Vogt

Boston Consulting Group - Germany ( email )

Cologne
Germany

Volker Vonhoff

University of Mannheim - Department of Business Administration and Finance ( email )

Mannheim, 68131
Germany
+49 621 181-1518 (Phone)
+49 621 181-1519 (Fax)

HOME PAGE: http://finanzierung.bwl.uni-mannheim.de/de/faculty/alumni/vonhoff/

Florian Weigert (Contact Author)

University of Neuchatel - Institute of Financial Analysis ( email )

Pierre-a-Mazel,7
Neuchatel, CH-2000
Switzerland

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

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