Granular Credit Risk

Sigurd Galaasen, Rustam Jamilov, Ragnar Juelsrud and Helene Rey

No 15385, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: What is the impact of granular credit risk on banks and the economy? We quantify single-name exposure risk in bank portfolios by applying a novel empirical strategy to an administrative loan-level dataset from Norway. Exploiting the fat-tailed properties of the loan-share distribution, we use the granular instrumental variable approach to show that idiosyncratic borrower risk survives aggregation within banks' portfolios. These granular credit shocks spill over from affected banks to firms, reducing investment and raising default risk among non-granular borrowers, with sizable consequences for the real economy.

Keywords: Granularity; Aggregation; Systemic risk; Financial intermediaries (search for similar items in EconPapers)
JEL-codes: G20 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (14)

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