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Stress Tests and Small Business Lending

Author

Listed:
  • Kristle Romero Cortes
  • Yuliya Demyanyk
  • Lei Li
  • Elena Loutskina
  • Philip E. Strahan

Abstract

Post-crisis stress tests have altered banks? credit supply to small business. Banks affected by stress tests reduce credit supply and raise interest rates on small business loans. Banks price the implied increase in capital requirements from stress tests where they have local knowledge, and exit markets where they do not, as quantities fall most in markets where stress-tested banks do not own branches near borrowers, and prices rise mainly where they do. These reductions in supply are concentrated among risky borrowers. Stress tests do not, however, reduce aggregate credit. Small banks increase their share in geographies formerly reliant on stress-tested lenders.

Suggested Citation

  • Kristle Romero Cortes & Yuliya Demyanyk & Lei Li & Elena Loutskina & Philip E. Strahan, 2018. "Stress Tests and Small Business Lending," Working Papers (Old Series) 1802, Federal Reserve Bank of Cleveland, revised 01 Mar 2018.
  • Handle: RePEc:fip:fedcwp:1802
    DOI: 10.26509/frbc-wp-201802
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    References listed on IDEAS

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    Cited by:

    1. Niepmann, Friederike & Stebunovs, Viktors, 2018. "Modeling Your Stress Away," CEPR Discussion Papers 12624, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    credit supply; large banks; small business lending; stress test;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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