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The effects of supervisory stress testing on bank lending: examining large UK banks

Author

Listed:
  • Kasim Ahmed

    (Loughborough University)

  • Giovanni Calice

    (Loughborough University)

Abstract

In this paper, we study the effects of supervisory stress test exercises on 19 UK banks over the 2005–2018 period. The novelty of our approach is that we include two stress testing timelines from two banking supervisory authorities. Using a difference-in-difference methodology, in a first step, we analyse the effects of the Bank of England’s stress tests on the lending behaviour of large UK banks. In a second step, for robustness, we also examine the stress tests administered by the European Banking Authority. Our main result is that banks that failed the stress tests reduced lending. Additionally, we show that the effectiveness of the stress tests exercises remained unchanged throughout the period.

Suggested Citation

  • Kasim Ahmed & Giovanni Calice, 2023. "The effects of supervisory stress testing on bank lending: examining large UK banks," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(2), pages 228-247, June.
    • Handle: RePEc:pal:jbkreg:v:24:y:2023:i:2:d:10.1057_s41261-022-00195-3
    DOI: 10.1057/s41261-022-00195-3
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stress test; Macroprudential policy; UK banking system; Bank lending; Credit risk;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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