Bank Stress Testing, Human Capital Investment and Risk Management
61 Pages Posted: 13 Jan 2023
There are 2 versions of this paper
Bank Stress Testing, Human Capital Investment and Risk Management
Bank Stress Testing, Human Capital Investment and Risk Management
Date Written: July 01, 2024
Abstract
This paper studies banks' investment in risk management practices following the Global Financial Crisis and the advent of stress testing. Our results suggest that 'Too Big to Fail' distortions weaken large banks' incentive to invest in risk management human capital. Stress testing spurs demand for highly skilled quantitative risk managers, but only narrowly in anticipation of a test and following poor performance on a test. Moreover, stress testing does not affect demand for risk management jobs not specifically linked to passing the tests, and recent changes to the tests could further erode their efficacy.
Keywords: Stress Testing, Human Capital Investment, Risk Management
JEL Classification: G20, G28, J23, J24
Suggested Citation: Suggested Citation