IDEAS home Printed from https://ideas.repec.org/p/ajk/ajkdps/294.html
   My bibliography  Save this paper

On the Relationship between Borrower and Bank risk

Author

Listed:
  • Yuliyan Mitkov

    (University of Bonn)

  • Ulrich Schüwer

    (Goethe University Frankfurt)

Abstract

We use tools from survival analysis to study the equilibrium probability of bank failure in a model with imperfect correlation in loan defaults where a systematic risk factor and idiosyncratic frailty factors govern borrower credit worth. We derive several surprising results: in equilibrium, a bank can be more likely to fail with less risky than with more risky borrowers. In addition, the equilibrium relationship between borrower and bank risk can be fundamentally altered by a greater dispersion of the frailty factors, similar to how mixing items of different durability can fundamentally change the overall aging pattern.

Suggested Citation

  • Yuliyan Mitkov & Ulrich Schüwer, 2024. "On the Relationship between Borrower and Bank risk," ECONtribute Discussion Papers Series 294, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:294
    as

    Download full text from publisher

    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_294_2024.pdf
    File Function: First version, 2024
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Correlated defaults; borrower heterogeneity; bank failure; survival analysis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ajk:ajkdps:294. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ECONtribute Office (email available below). General contact details of provider: https://www.econtribute.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.