Stress-test failures increase banks’ M&A scrutiny, Fed research finds

US lenders’ merger-related activity improves if they have failed tests, authors say

stress testing

Banks that fail the Federal Reserve’s stress tests engage in enhanced scrutiny of corporate mergers and acquisitions, a working paper finds.

When banks engage in that greater scrutiny, their loans for mergers and acquisitions (M&As) decrease in number and increase in quality. Credit quality improves, there are higher returns on assets, and stock prices rise in reaction, the researchers say.

The paper was published by the Federal Reserve System, and was written by Buhui Qiu and Teng Wang. Qiu is a

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