We investigate the effects of the announcement and the disclosure of the clarification, methodology, and outcomes of the U.S. banking stress tests on banks’ equity prices, credit risk, systematic risk, and systemic risk. We find evidence that stress tests have moved stock and credit markets following the disclosure of stress test results. We also find that banks’ systematic risk, as measured by betas, declined in nearly all years after the publication of stress test results. Our evidence suggests that stress tests affect systemic risk.

Using a newly constructed database for 26 countries over 2000-2014, we analyze cross-country and within-country differences in mortgage arrears. We find that restrictive macro-prudential policies, in particular lower regulatory loan-to-value ratios, are significantly associated with a lower share of mortgage arrears in total residential debt. Likewise, better institutions are related with lower delinquency rates, both directly and by enhancing the impact of macro-prudential policies and the right to recourse. We also find that the effect of macro-prudential policies is conditioned by several mortgage market characteristics, such as the maturity of loans, interest rate fixity, and tax deductibility of interest payments.