Bank Stress Testing, Human Capital Investment and Risk Management

46 Pages Posted: 13 Jan 2023

See all articles by Thomas Schneider

Thomas Schneider

Old Dominion University - Finance

Philip E. Strahan

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

Jun Yang

University of Notre Dame

Multiple version iconThere are 2 versions of this paper

Date Written: January 13, 2023

Abstract

This paper studies banks’ investment in risk management practices following the Global Financial Crisis and the advent of stress testing. Banks that experienced greater losses during the Crisis exhibit stronger demand for risk management talents. Banks increase their demand for highly skilled stress test labor in anticipation of a test and following poor performance on a test. Following this higher demand, banks exhibit lower systematic risk and lower profitability. While stress testing has modernized banks’ internal risk management by spurring the acquisition of highly skilled risk management talent, recent changes to the tests could erode its efficacy.

Keywords: Stress Testing, Human Capital Investment, Risk Management

JEL Classification: G20, G28, J23, J24

Suggested Citation

Schneider, Thomas and Strahan, Philip E. and Yang, Jun, Bank Stress Testing, Human Capital Investment and Risk Management (January 13, 2023). Available at SSRN: https://ssrn.com/abstract=4323886 or http://dx.doi.org/10.2139/ssrn.4323886

Thomas Schneider

Old Dominion University - Finance ( email )

Norfolk, VA 23529-0222
United States

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

Jun Yang (Contact Author)

University of Notre Dame ( email )

Notre Dame, IN
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
82
Abstract Views
287
Rank
459,273
PlumX Metrics