Granular credit risk

Sigurd Galaasen, Rustam Jamilov, Helene Rey and Ragnar Juelsrud

No 2020/15, Working Paper from Norges Bank

Abstract: What is the impact of granular credit risk on banks and on the economy? We provide the ?rst causal identi?cation of single-name counterparty exposure risk in bank portfolios by applying a new empirical approach on an administrative matched bank-?rm dataset from Norway. Exploiting the fat tail properties of the loan share distribution we use a Gabaix and Koijen (2020a,b) granular instrumental variable strategy to show that idiosyncratic borrower risk survives aggregation in banks portfolios. We also ?nd that this granular credit risk spills over from affected banks to ?rms, decreases investment, and increases the probability of default of non-granular borrowers, thereby sizably affecting the macroeconomy.

Keywords: granular credit risk; credit concentration; granular borrowers; large exposures regulation; granular instrumental variable; granular hypothesis (search for similar items in EconPapers)
Pages: 62 pages
Date: 2020-10-15
New Economics Papers: this item is included in nep-ban, nep-eur, nep-fdg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://hdl.handle.net/11250/2690132

Related works:
Working Paper: Granular Credit Risk (2020)
Working Paper: Granular Credit Risk (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2020_15

Access Statistics for this paper

More papers in Working Paper from Norges Bank Contact information at EDIRC.
Bibliographic data for series maintained by ().