Stress tests and asset quality reviews of banks: A policy announcement tool |
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| Affiliation: | 1. Department of Finance, National Taichung University of Science and Technology, Taiwan, ROC;2. Department of Finance, Chihlee Institute of Technology, Taiwan, ROC;3. Department of Business Education, National Changhua University of Education, Taiwan, ROC;4. Department of Assets and Property Management, Hwa Hsia University of Technology, Taiwan, ROC;1. School of Economics, University of Seoul, 163 Seoulsiripdae-ro, Dongdaemun-gu, Seoul 02504, South Korea;2. School of Management Engineering, KAIST College of Business, 85 Hoegiro, Dongdaemun-gu, Seoul 02455, South Korea;3. College of Economics and Finance, Hanyang University, 222 Wangsimni-ro, Seongdong-gu, Seoul 04765, South Korea |
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| Abstract: | It is common in the supervision of banks to perform and disclose a simultaneous standardized assessment of their asset quality, organizational effectiveness, strategic viability and resilience to financial turmoil. By investigating the European Central Bank 2014 Comprehensive Assessment and the stock reactions of the banks to its findings, we find that this process provides limited assistance to the market in sorting good from troubled banks. Notwithstanding, the market adjusts to these findings, since it understands that they signal the stance of supervisory policy toward banking activities, which begets the level of regulatory risk and cost for the supervised banks. |
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| Keywords: | Stress test Banks Supervision Signaling ECB |
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