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Granular Credit Risk

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  • Galaasen, Sigurd
  • Jamilov, Rustam
  • Juelsrud, Ragnar
  • Rey, Hélène

Abstract

What is the impact of granular credit risk on banks and the economy? We quantify single-name exposure risk in bank portfolios by applying a novel empirical strategy to an administrative loan-level dataset from Norway. Exploiting the fat-tailed properties of the loan-share distribution, we use the granular instrumental variable approach to show that idiosyncratic borrower risk survives aggregation within banks' portfolios. These granular credit shocks spill over from affected banks to firms, reducing investment and raising default risk among non-granular borrowers, with sizable consequences for the real economy.

Suggested Citation

  • Galaasen, Sigurd & Jamilov, Rustam & Juelsrud, Ragnar & Rey, Hélène, 2020. "Granular Credit Risk," CEPR Discussion Papers 15385, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:15385
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    3. Peydró, José-Luis & Jiménez, Gabriel & Kenan, Huremovic & Moral-Benito, Enrique & Vega-Redondo, Fernando, 2020. "Production and financial networks in interplay: Crisis evidence from supplier-customer and credit registers," CEPR Discussion Papers 15277, Centre for Economic Policy Research.
    4. Gasparini, Tommaso & Lewis, Vivien & Moyen, Stéphane & Villa, Stefania, 2026. "Risky firms and fragile banks: implications for macroprudential policy," Journal of International Money and Finance, Elsevier, vol. 160(C).
    5. Bremus, Franziska & Krause, Thomas & Noth, Felix, 2021. "Lender-specific mortgage supply shocks and macroeconomic performance in the United States," IWH Discussion Papers 3/2021, Halle Institute for Economic Research (IWH).
    6. Juelsrud, Ragnar E., 2021. "Deposit concentration at financial intermediaries," Economics Letters, Elsevier, vol. 199(C).
    7. Xavier Gabaix & Ralph S. J. Koijen, 2024. "Granular Instrumental Variables," Journal of Political Economy, University of Chicago Press, vol. 132(7), pages 2274-2303.
    8. Franziska Bremus & Thomas Krause & Felix Noth, 2021. "Lender-Specific Mortgage Supply Shocks and Macroeconomic Performance in the United States," Discussion Papers of DIW Berlin 1936, DIW Berlin, German Institute for Economic Research.
    9. Federico, Stefano & Marinelli, Giuseppe & Palazzo, Francesco, 2025. "Export shocks and banks’ domestic credit: Balancing liquidity provision and risk mitigation," Journal of International Economics, Elsevier, vol. 158(C).
    10. Bremus, Franziska & Ludolph, Melina, 2021. "The nexus between loan portfolio size and volatility: Does bank capital regulation matter?," Journal of Banking & Finance, Elsevier, vol. 127(C).
    11. Fang, Yi & Tang, Qirui, 2026. "Global financial cycle: The temporal dimension and cross-sectional dimension," Pacific-Basin Finance Journal, Elsevier, vol. 96(C).
    12. Kwak, Jun Hee & Han, Bada & Lee, Jae Young, 2025. "The causal effects of equity flows: Evidence from Korea," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 102(C).

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    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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