IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Concentration risk under Pillar 2: When are credit portfolios infinitely fine grained?

Listed author(s):
  • Gürtler, Marc
  • Heithecker, Dirk
  • Hibbeln, Martin
Registered author(s):

    The ongoing debate concerning credit concentration risk is mainly driven by the requirements on credit risk management due to Pillar 2 of Basel II since risks (e.g. concentration risk) that are not fully captured by Pillar 1 should be adequately considered in the banks' risk management. This instruction is indeed relevant since quantifying credit portfolio risk in Pillar 1 is based on an Asymptotic Single Risk Factor (ASRF) framework in which concentration risk is not covered. Against the background of the ASRF model, we determine the number of credits up to which concentration risk leads to a significant estimation error so that the assumption of an infinitely fine grained portfolio is inadequate. We conclude that the critical portfolio size varies from 22 up to 35,986 debtors, dependent on assets correlation and probability of default. Using a modified valuation function (granularity adjustment) it is possible to reduce the critical number of credits by averaged 83.04 %.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by Technische Universität Braunschweig, Institute of Finance in its series Working Papers with number FW20V4.

    in new window

    Date of creation: 2006
    Handle: RePEc:zbw:tbsifw:fw20v4
    Contact details of provider: Postal:
    Pockelsstr. 14, D-38106 Braunschweig

    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:zbw:tbsifw:fw20v4. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.