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The common drivers of default risk

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  • Memmel, Christoph
  • Gündüz, Yalin
  • Raupach, Peter

Abstract

Using a unique data set on German banks' loans to the German real economy, we investigate banks' credit risk. This data set includes the volume of loans per bank and industry as well as the corresponding write-downs. Our empirical study for the period 2003-2011 yields the following results: (i) Beyond the nationwide credit loss rate, industry composition, and regional factors, the loans' maturity structure is found to drive the bank-wide loss rates in the credit portfolio. (ii) The nationwide loss rate has the most impact, followed by the maturity structure and the industry composition. (iii) For nationwide banks, these common factors explain about 26% of the time variation in the loss rate of credit portfolios; for regional banks, this percentage is less than eight percent. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 36/2012.

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Date of creation: 2012
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Handle: RePEc:zbw:bubdps:362012

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Keywords: credit risk; systematic risk; maturity; stress tests;

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References

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  1. Lars Norden & Martin Weber, 2010. "Credit Line Usage, Checking Account Activity, and Default Risk of Bank Borrowers," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 23(10), pages 3665-3699, October.
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  7. Bornemann, Sven & Kick, Thomas & Memmel, Christoph & Pfingsten, Andreas, 2012. "Are banks using hidden reserves to beat earnings benchmarks? Evidence from Germany," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(8), pages 2403-2415.
  8. Kirschenmann, K., 2010. "The Dynamics in Requested and Granted Loan Terms when Bank and Borrower Interact Repeatedly," Discussion Paper, Tilburg University, Center for Economic Research 2010-63, Tilburg University, Center for Economic Research.
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  11. Pesaran, M. Hashem & Schuermann, Til & Treutler, Bjorn-Jakob & Weiner, Scott M., 2006. "Macroeconomic Dynamics and Credit Risk: A Global Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 38(5), pages 1211-1261, August.
  12. Flannery, Mark J, 1986. " Asymmetric Information and Risky Debt Maturity Choice," Journal of Finance, American Finance Association, American Finance Association, vol. 41(1), pages 19-37, March.
  13. Karolin Kirschenmann & Lars Norden, 2012. "The Relationship between Borrower Risk and Loan Maturity in Small Business Lending," Journal of Business Finance & Accounting, Wiley Blackwell, Wiley Blackwell, vol. 39(5-6), pages 730-757, 06.
  14. Michael B. Gordy, 1998. "A comparative anatomy of credit risk models," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1998-47, Board of Governors of the Federal Reserve System (U.S.).
  15. Crouhy, Michel & Galai, Dan & Mark, Robert, 2000. "A comparative analysis of current credit risk models," Journal of Banking & Finance, Elsevier, Elsevier, vol. 24(1-2), pages 59-117, January.
  16. Patrick Rey & Joseph E. Stiglitz, 1993. "Short-Term Contracts as a Monitoring Device," NBER Working Papers 4514, National Bureau of Economic Research, Inc.
  17. Behr, Andreas & Kamp, Andreas & Memmel, Christoph & Pfingsten, Andreas, 2007. "Diversification and the banks' risk-return-characteristics: evidence from loan portfolios of German banks," Discussion Paper Series 2: Banking and Financial Studies 2007,05, Deutsche Bundesbank, Research Centre.
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Cited by:
  1. Jahn, Nadya & Memmel, Christoph & Pfingsten, Andreas, 2013. "Banks' concentration versus diversification in the loan portfolio: New evidence from Germany," Discussion Papers 53/2013, Deutsche Bundesbank, Research Centre.

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