Cleveland Fed paper examines stress tests’ impact on lending
Some banks cut back on business lending, but community banks take up the slack, paper finds
Stress-testing can reduce some individual banks’ lending to small businesses, but on aggregate lending is unchanged, a paper published by the Federal Reserve Bank of Cleveland finds.
Yuliya Demyanyk evaluates the effects of the Fed’s stress tests on US small business lending from 2012–15. She measures whether banks that are required to raise their capital ratios – which they call “stress-test exposure” – cut their lending to small firms.
The paper finds that banks with higher stress-test
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