Publikace |
2022
Abstrakt
We investigate how the regulatory stress-test framework in the European Union affects banks' investment decisions and portfolio choices. Using the causal inference and event-study methods, we document a substantial impact of EU-wide stress tests in 2011, 2014, and 2016 on the banks' portfolio strategies.
The banks subject to regulatory stress tests tend to structure their portfolios with lower-risk assets, which is reflected in a decline in risk-weighted assets. At the same time, the dynamic of realized risk that is measured by the proportion of non-performing exposure in portfolios remains unaffected.
The magnitude of such effect rises with the increase in the size of the banks' assets.