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

Moustapha Daouda Dala (1) , Isabelle Distinguin (2) , Alain Sauviat (2)

1 Epoka University, Department of Banking and Finance, Rruga Tirane-Rinas Km 12, 1032, Vore, Tirana, Albania
2 LAPE - Laboratoire d'Analyse et de Prospective Economique

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.

Mots clés: stress tests; credit rating; split rating; banks' opacity

Domaines: Economies et finances

Moustapha Daouda Dala, Isabelle Distinguin, Alain Sauviat. What is the information value of bank's stress tests? An investigation using banks' bond split ratings. 2020. ⟨hal-02475512⟩