Stress Testing Effects on Portfolio Similarities Among Large Us Banks

40 Pages Posted: 17 Jul 2019

See all articles by Falk Bräuning

Falk Bräuning

Federal Reserve Banks - Federal Reserve Bank of Boston

Jose L. Fillat

Federal Reserve Banks - Federal Reserve Bank of Boston

Date Written: 2019-04-01

Abstract

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: bank correlations, concentration, portfolio similarity, stress tests, systemic risk

JEL Classification: G21, G28

Suggested Citation

Bräuning, Falk and Fillat, Jose L., Stress Testing Effects on Portfolio Similarities Among Large Us Banks (2019-04-01). Federal Reserve Bank of Boston Research Paper Series Current Policy Perspectives Paper No. 19-1. Available at SSRN: https://ssrn.com/abstract=3416874

Falk Bräuning (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Jose L. Fillat

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
617-973-3342 (Phone)
617-5735445 (Fax)

HOME PAGE: http://www.bos.frb.org/economic/econbios/fillat.htm

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