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Why Did Bank Stocks Crash During COVID-19? / Viral V. Acharya, Robert F. Engle III, Sascha Steffen.
- Format:
- Book
- Author/Creator:
- Acharya, Viral V.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w28559.
- NBER working paper series no. w28559
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2021.
- Summary:
- We study the crash of bank stock prices during the COVID-19 pandemic. We find evidence consistent with a "credit line drawdown channel". Stock prices of banks with large ex-ante exposures to undrawn credit lines as well as large ex-post gross drawdowns decline more. The effect is attenuated for banks with higher capital buffers. These banks reduce term loan lending, even after policy measures were implemented. We conclude that bank provision of credit lines appears akin to writing deep out-of-the-money put options on aggregate risk; we show how the resulting contingent leverage and stock return exposure can be incorporated tractably into bank capital stress tests.
- Notes:
- Print version record
- March 2021.
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