UNSW Business School
School of Banking and Finance
Office 348, Level 3, Central Wing
Gate 2, High Street
University of New South Wales
Kensington 2052, Sydney New South Wales
Institutional Affiliation: University of New South Wales
NBER Working Papers and Publications
|March 2018||Stress Tests and Small Business Lending|
with Yuliya Demyanyk, Lei Li, Elena Loutskina, Philip E. Strahan: w24365
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.
Published: Kristle R. Cortés & Yuliya Demyanyk & Lei Li & Elena Loutskina & Philip E. Strahan, 2019. "Stress Tests and Small Business Lending," Journal of Financial Economics, .