The Real Effects of Stress Testing

Abstract

Following the 2009 round of U.S. bank stress tests, the Supervisory Capital Assessment Program (SCAP), tested banks exhibited lower exit and entry rates in syndicated loan facilities. Facilities with high exposures to tested banks experienced reductions in tested bank participation that were offset by European and non-tested U.S. banks, smoothing shocks to credit at the intensive margin. There were similarly no significant changes in credit or real outcomes at the extensive margin for highly-exposed firms. However, firms exposed to banks that did not pass the SCAP faced temporarily lower borrowing outcomes and reduced investment in fixed assets.