Hong Nguyen email@example.com.
Do stress tests affect bank liquidity creation?
Nguyen, Hong; Vu, Thach; Ahmed, Shamim; Chevapatrakul, Thanaset; Onali, Enrico
Shamim Ahmed firstname.lastname@example.org.
Thanaset Chevapatrakul email@example.com.
Enrico Onali firstname.lastname@example.org.
We examine the impact of Federal Reserve stress tests from 2009 to 2016 on U.S. bank liquidity creation. Empirical results show that regulatory stress tests have a negative effect on both on-and off-balance sheet bank liquidity creation and asset-side liquidity creation. As banks enter the stress tests, they reduce their liquidity creation to avoid failing the stress tests. These results are consistent with the hypothesis that banks manage their risk exposures to meet higher capital requirements. The negative effect of stress testing on liquidity creation continues to persist in the quarters after the stress tests. Finally, stress test banks appear to increase liability-side liquidity creation. These findings highlight that the enhanced financial stability from greater regulatory scrutiny may be achieved at the expense of financial intermediation. JEL Classification: G21; G28.
|Journal Article Type||Article|
|Journal||Journal of Corporate Finance|
|Peer Reviewed||Peer Reviewed|
|APA6 Citation||Nguyen, H., Vu, T., Ahmed, S., Chevapatrakul, T., & Onali, E. (in press). Do stress tests affect bank liquidity creation?. Journal of Corporate Finance,|
|Keywords||Stress testing; Bank liquidity creation; SCAP; CCAR * Corresponding author|
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