Granular Credit Risk

Sigurd Galaasen, Rustam Jamilov, Ragnar Juelsrud and Helene Rey

No 27994, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What is the impact of granular credit risk on banks and the economy? We provide the first causal identification of single-name counterparty exposure risk in bank portfolios by applying a new empirical approach on an administrative matched bank-firm dataset from Norway. Exploiting the fat tail properties of the loan-share distribution we use Gabaix and Koijen (2022, 2023)’s granular instrumental variable strategy to show that idiosyncratic borrower risk survives aggregation in banks’ portfolios. We find that this granular credit risk spills over from affected banks to firms, decreases investment and increases the probability of default of non-granular borrowers, affecting sizeably the macroeconomy.

JEL-codes: E3 G2 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-ban, nep-mac and nep-rmg
Note: CF IFM
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Granular credit risk (2020)
Working Paper: Granular Credit Risk (2020)
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