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Stress Tests and Small Business Lending

Author

Listed:
  • Kristle Cortés
  • 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 Cortés & Yuliya Demyanyk & Lei Li & Elena Loutskina & Philip E. Strahan, 2018. "Stress Tests and Small Business Lending," NBER Working Papers 24365, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24365
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    References listed on IDEAS

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