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Systemic Risk of the Consumer Credit Network across Financial Institutions

Author

Listed:
  • Hyun Hak Kim

    (Department of Economics, Kookmin University)

  • Hosung Jung

    (Economic Research Institute, Bank of Korea)

Abstract

We investigate a network of financial institutions in Korea using the Korea Consumer Credit Panel (KCCP). The main contribution of this paper is that we construct the network of financial institution from the consumer credit level. We assume each consumer make a loan from multiple institutions so that those institutions share same risk from same consumer no matter of quality or type of loan. Then we construct the financial network between institutions and compute contagion index based on those multiple connection with a weight of default probability of individual borrowers. We found strong connection with banking institutions and credit card firms due to convenience in making small-amount loans with credit cards. However, when we give an weight with default probability to the linkage among institutions, connections of banking institution with savings bank, non-credit card finance corporation and merchant banking are stronger than others, while banking institution holds center position and has biggest amount of loans individually. Contagion index hit a peak in 2013Q1 and then fell rapidly, finally has been fluctuated in relatively low level from 2016 to 2017Q2. The result in our paper enables the authority to watch the systemic risk from consumer credit level with specific consumer type with their default probability.

Suggested Citation

  • Hyun Hak Kim & Hosung Jung, 2019. "Systemic Risk of the Consumer Credit Network across Financial Institutions," Working Papers 2019-23, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1923
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    References listed on IDEAS

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    More about this item

    Keywords

    Systemic risk; Financial network; Consumer credit; Financial stability;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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