Single-name concentration risk in credit portfolios: a comparison of concentration indices
AbstractFor assessing the effect of undiversified idiosyncratic risk, Basel II has established that banks should measure and control their credit concentration risk. Concentration risk in credit portfolios comes into being through an uneven distribution of bank loans to individual borrowers (single-name concentration) or through an unbalanced allocation of loans in productive sectors and geographical regions (sectoral concentration). To evaluate single-name concentration risk in the literature concentration indices proposed in welfare (Gini Index) and monopoly theory (Herfindahl- Hirschman index, Theil entropy index, Hannah-Kay index, Hall-Tidemann index) have been used. In this paper such concentration indices are compared by using as benchmark six properties that ensure a consistent measurement of single-name concentration. Finally, the indices are compared on some portfolios of loans.
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Bibliographic InfoPaper provided by Geary Institute, University College Dublin in its series Working Papers with number 201214.
Length: 15 pages
Date of creation: 22 May 2012
Date of revision:
credit concentration risk; bank loans; single-name concentration;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-29 (All new papers)
- NEP-BAN-2012-05-29 (Banking)
- NEP-RMG-2012-05-29 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gordy, Michael B., 2003.
"A risk-factor model foundation for ratings-based bank capital rules,"
Journal of Financial Intermediation,
Elsevier, vol. 12(3), pages 199-232, July.
- Michael B. Gordy, 2002. "A risk-factor model foundation for ratings-based bank capital rules," Finance and Economics Discussion Series 2002-55, Board of Governors of the Federal Reserve System (U.S.).
- Encaoua, David & Jacquemin, Alexis, 1980. "Degree of Monopoly, Indices of Concentration and Threat of Entry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 87-105, February.
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