Stress Tests, Information Disclosure, and Credit Line Runs

The public disclosure of bank‐level stress test results, while informative for market participants, can adversely affect underperforming entities. We uncover a novel cost of disclosing unfavorable stress test results: credit line runs. Using Spanish Credit Register data and the 2011 European Banking Authority stress test, we find that, after results were released, firms drew down about 10 percentage points more available funds from credit lines granted by banks with poor stress test performance. In addition, these banks reduced credit line sizes more before the release and were more likely to cut term lending to firms without credit lines afterward.