The dissertation oers insights into measuring and managing risk in nancial in-
stitutions and the role of central banks as regulators and supervisors. Specically, the rst
chapter analyzes the impact of U.S. rms' equity risk on bank lending standards and on the
macroeconomy, considering two groups: small rms and medium-large rms. Using rms'
daily stock returns, we construct a rm equity risk index for each group based on 30,000
rms over 104 quarters. Once the indices are constructed, they are analyzed with a large
dataset of over 50 macroeconomic and nancial time series using the Factor-Augmented
Vector Autoregressive (FAVAR) framework. The results indicate that a higher level of rm
risk leads to a higher percentage of banks tightening their lending standards on commercial
and industrial (C&I) loans. The eect of rm risk on bank lending standards for medium-
large rms is twice that for small rms. In addition, we nd that greater rm risk results
in an inversion of the yield curve, an increase in the corporate bond risk premium, and a
decrease in real GDP. Lastly, the eect of an increase in rm risk on bank lending standards
and the economy is larger during recessions than in expansions.
The second chapter uses a big dataset of over one million observations on rm
characteristics, bank balance sheets, and loan information to study the default risk of loans
to small businesses under the Small Business Administration (SBA) loan guarantee program.
Using a logistic model, we nd that loan age is the most important predictor of loan default
over the entire sample. This is also the case for the periods before, during, and after
the 2008 nancial crisis. The other important variables are bank capital and bank assets
in predicting default risk before and during the crisis period. However, after the crisis,
rm characteristics, such as earnings-to-assets and debt-to-assets, are the most important
predictors after loan age. The results suggest that major post-crisis reforms in the banking
industry may have improved the quality of bank balance sheets. Bank characteristics,
therefore, have since become less crucial in determining the quality of loans after the crisis.
The third chapter investigates the eects of the Dodd-Frank Act Stress Test
(DFAST) on bank equity risk and liquidity risk management of the 100 largest publicly
traded banks in the U.S. based on their consolidated assets. Bank equity risk is derived
from banks' daily stock returns. Exposure to liquidity risk is measured by the amount of
bank equity capital, core deposits, and liquid assets since they act as buers for banks when
market liquidity becomes scarce. Using a dierence in dierence panel data model for the
period between 2008Q1-2017Q4, the paper nds that the implementation of the DFAST
signicantly decreases bank equity risk and increases the amount of equity capital and core
deposits held at stress-tested banks. The paper concludes that the stress test indeed has
had a positive impact on banks' risk exposure and risk management.