Stress testing on credit supply

Abstract

This study shows how post-crisis stress tests have affected the supply of home equity business loans. Stress tested banks reduce their loan originations but in terms of purchased loans, this effect is much stronger among stress tested banks that failed the exercise compared to other groups of banks. The magnitude of these effects is inversely proportional to the size of the loans. Even though the aggregate level of credit supply is relatively unchanged, within each size category of loans adopted in this study, growth rates are directly proportional to its origination size. The loan distributions significantly differ among stresstested and non-stress-tested banks and there are significant geographical shifts in loan originations both by categories of banks and size of loans.