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Stressed Banks

Author

Listed:
  • Diane Pierret

    (University of Lausanne and Swiss Finance Institute)

  • Roberto Steri

    (University of Lausanne and Swiss Finance Institute)

Abstract

We investigate the risk taking incentives of "stressed banks" — the banks that are subject to annual regulatory stress tests in the U.S. since 2011. We document that stress tests effectively encourage prudent investment from stressed banks through regulatory monitoring, but also provide them with steeper risk-taking incentives through tighter capital requirements. Our results highlight the importance of regulatory monitoring of banks' portfolios in parallel to setting more stringent capital requirements.

Suggested Citation

  • Diane Pierret & Roberto Steri, 2017. "Stressed Banks," Swiss Finance Institute Research Paper Series 17-58, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1758
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    More about this item

    Keywords

    Capital Regulation; Dodd-Frank Act; Regulatory Monitoring; Stress Tests;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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