Investigating the impact of supervisory stress tests on bank performance: bank lending, credit risk, and diversification

The thesis investigates the impact of supervisory stress tests on bank performance using three bank performance measures. The Global Financial Crisis exposed vulnerabilities within the banking system that resulted in insolvency issues for several financial institutions. In particular, there was a need for government intervention to support struggling banks during the crisis. Due to the crisis, new banking regulations via the Basel III accords have attempted to address vulnerabilities, improve regulations to foster market discipline, and strengthen the financial system. This thesis investigates one section of the Basel III accords that overhauled the stress testing regime.