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What is the information value of bank's stress tests? An investigation using banks' bond split ratings

Author

Listed:
  • Moustapha Daouda Dala

    (Epoka University, Department of Banking and Finance)

  • Isabelle Distinguin

    (UNIVERSITE DE LIMOGES, LAPE)

  • Alain Sauviat

    (UNIVERSITE DE LIMOGES, LAPE)

Abstract

We study the informative value of stress tests by investigating the impact of the disclosure of their results on banks' bonds split ratings taken as a measure of bank opacity. We consider bonds jointly rated by Moody's and Standard & Poor's and issued by banks that participated to the European and US banks' stress tests. Our results suggest that the disclosure of stress results has mixed effect on split ratings. Our findings also suggest a frequent divergence of interpretation of the stress test results between the two rating agencies meaning that information would not be as relevant as hoped by regulators. Market players certainly could not extract an unambiguous signal from all the results disclosed by the stress tests.

Suggested Citation

  • Moustapha Daouda Dala & Isabelle Distinguin & Alain Sauviat, 2020. "What is the information value of bank's stress tests? An investigation using banks' bond split ratings," Economics Bulletin, AccessEcon, vol. 40(1), pages 485-499.
    • Handle: RePEc:ebl:ecbull:eb-19-00414
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    References listed on IDEAS

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    Cited by:

    1. Abad, Pilar & Robles, M.-Dolores & Alonso Orts, Carlos, 2023. "Stress testing programs and credit risk opacity of banks: USA vs Europe," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).

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    More about this item

    Keywords

    stress tests; credit rating; split rating; banks' opacity;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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