Journal Article
How Did Banks and Investors Respond to the 2020 Stress Test Results?
Abstract: In this paper, I examine how the announcement of the payout restrictions influenced bank capital levels and stock prices. I find that the restrictions helped build capital levels at large banks but may have indirectly hampered stock price returns. First, I show that surprisingly strong income growth combined with the payout restrictions drove capital to near record levels during this period. Second, I show that the payout restrictions had only a minimal effect on stock prices for most banks. Instead, the threat of increased supervisory stringency appears to have generated more persistent effects on stock prices, particularly for directly affected banks and those near the supervisory threshold. My results suggest that the post-GFC supervisory preference for payouts to be conducted primarily through repurchases, rather than dividends, provided a capital conservation channel that had only modest effects on bank stock returns.
https://doi.org/10.18651/ER/v107n1Marsh
Access Documents
File(s):
File format is application/pdf
https://www.kansascityfed.org/documents/8614/EconomicReviewV107N1Marsh.pdf
Description: Full text
Authors
Bibliographic Information
Provider: Federal Reserve Bank of Kansas City
Part of Series: Economic Review
Publication Date: 2022-02-03
Volume: 107
Issue: no.1