Working Paper: NBER ID: w24365
Authors: Kristle Corts; 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.
Keywords: Stress Tests; Small Business Lending; Banking Regulation
JEL Codes: G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stress Test Exposure (C58) | Small Business Credit Supply (E51) |
| Stress Test Exposure (C58) | Interest Rates on Small Business Loans (E43) |
| Stress Test Exposure (C58) | Loan Portfolio Rebalancing (G51) |
| Lack of Local Branch Presence (F29) | Access to Local Information (R53) |
| Higher Stress Test Exposure (G28) | Increased Interest Rates in Local Markets with Branch Presence (G21) |
| Small Banks (G21) | Market Share Increase in Areas Dependent on Stress-Tested Banks (G21) |