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Granular credit risk

Author

Listed:
  • Sigurd Galaasen
  • Rustam Jamilov
  • Hélène Rey
  • Ragnar Juelsrud
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.

Suggested Citation

  • Sigurd Galaasen & Rustam Jamilov & Hélène Rey & Ragnar Juelsrud, 2020. "Granular credit risk," Working Paper 2020/15, Norges Bank.
    • Handle: RePEc:bno:worpap:2020_15
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    File URL: https://hdl.handle.net/11250/2690132
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    Cited by:

    1. Falk Bräuning & José Fillat & Gustavo Joaquim, 2022. "Cost-Price Relationships in a Concentrated Economy," Current Policy Perspectives 94265, Federal Reserve Bank of Boston.
    2. Peydró, José-Luis & Jiménez, Gabriel & Kenan, Huremovic & Moral-Benito, Enrique & Vega-Redondo, Fernando, 2020. "Production and financial networks in interplay: Crisis evidence from supplier-customer and credit registers," CEPR Discussion Papers 15277, C.E.P.R. Discussion Papers.
    3. Bremus, Franziska & Ludolph, Melina, 2021. "The nexus between loan portfolio size and volatility: Does bank capital regulation matter?," Journal of Banking & Finance, Elsevier, vol. 127(C).
    4. Bremus, Franziska & Krause, Thomas & Noth, Felix, 2021. "Lender-specific mortgage supply shocks and macroeconomic performance in the United States," IWH Discussion Papers 3/2021, Halle Institute for Economic Research (IWH).
    5. Xavier Gabaix & Ralph S. J. Koijen, 2024. "Granular Instrumental Variables," Journal of Political Economy, University of Chicago Press, vol. 132(7), pages 2274-2303.
    6. Juelsrud, Ragnar E., 2021. "Deposit concentration at financial intermediaries," Economics Letters, Elsevier, vol. 199(C).
    7. Franziska Bremus & Thomas Krause & Felix Noth, 2021. "Lender-Specific Mortgage Supply Shocks and Macroeconomic Performance in the United States," Discussion Papers of DIW Berlin 1936, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    granular credit risk; credit concentration; granular borrowers; large exposures regulation; granular instrumental variable; granular hypothesis;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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