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Bank–insurer–firm tripartite interconnectedness of credit risk exposures in a cross-shareholding network

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  • Masayasu Kanno

    (Nihon University)

Abstract

This study assesses the interconnectedness of credit risk exposures in a tripartite network of cross-shareholdings among banks, insurers, and firms in Japan’s stock market during the fiscal years 2008–2015. We use consistent measures: credit risk exposure by PD (probability of default)/LGD (loss given default) approach in Basel III and RORA (return on risk-weighted assets). We conduct a credit risk analysis of the risk exposures in the cross-shareholdings. The result shows that by following the PD/LGD approach, the credit risk weights become approximately 1.5–5 times as large as by the transitional risk weight method. The mean exposure-weighted risk for the firm’s shareholdings is 1.67 times as large as the bank’s and the insurer’s. We analyze the network structure of the cross-shareholdings using network centrality measures. Our analysis can provide each entity with important implications on credit risk management in their cross-shareholdings.

Suggested Citation

  • Masayasu Kanno, 2018. "Bank–insurer–firm tripartite interconnectedness of credit risk exposures in a cross-shareholding network," Risk Management, Palgrave Macmillan, vol. 20(4), pages 273-303, November.
    • Handle: RePEc:pal:risman:v:20:y:2018:i:4:d:10.1057_s41283-018-0033-4
    DOI: 10.1057/s41283-018-0033-4
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    Cited by:

    1. Kanno, Masayasu, 2020. "Credit rating migration risk and interconnectedness in a corporate lending network," Research in International Business and Finance, Elsevier, vol. 54(C).
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    3. Kanno, Masayasu, 2020. "Credit risk assessment in real estate investment trusts: A perspective on blockholding and lending networks," International Review of Financial Analysis, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Credit risk; Cross-shareholding; Interconnectedness; Return on risk-weighted assets (RORA); Centrality measure;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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