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Granular Credit Risk

Author

Listed:
  • Sigurd Galaasen
  • Rustam Jamilov
  • Ragnar Juelsrud
  • Hélène Rey

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 sizeable consequences for the real economy.

Suggested Citation

  • Sigurd Galaasen & Rustam Jamilov & Ragnar Juelsrud & Hélène Rey, 2020. "Granular Credit Risk," NBER Working Papers 27994, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27994
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    Cited by:

    1. Falk Bräuning & José Fillat & Gustavo Joaquim, 2022. "Cost-Price Relationships in a Concentrated Economy," Current Policy Perspectives 94265, Federal Reserve Bank of Boston.
    2. Oleg Itskhoki & Dmitry Mukhin, 2025. "What Drives the Exchange Rate?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 73(1), pages 86-117, March.
    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, C.E.P.R. Discussion Papers.
    4. Xavier Gabaix & Ralph S. J. Koijen, 2024. "Granular Instrumental Variables," Journal of Political Economy, University of Chicago Press, vol. 132(7), pages 2274-2303.
    5. 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.
    6. 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).
    7. 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).
    8. 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).
    9. Juelsrud, Ragnar E., 2021. "Deposit concentration at financial intermediaries," Economics Letters, Elsevier, vol. 199(C).

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G2 - Financial Economics - - Financial Institutions and Services

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