Concentration risk

With concentrations of risk are referred to in the banking industry, the cumulative accumulation of credit risk with similar or identical correlation values ​​( borrowers, industries, regions ) that reach the risk-bearing capacity of credit institutions or exceed.

Risk diversification

Every company, whether it be credit institutions must comply with the principle of risk spreading. The risk diversification general aim, investment or asset risk as possible to " diversify ", ie to distribute the total amount to different maturities, shapes and debtors. In this way, excessive risks are avoided. So allowed investment companies and investment companies agents in accordance with the principle of risk diversification create ( as, inter alia, § 110, § 214, § 243 KAGB ).

Banking

At the risk diversification distinction is made between the concentration in loans to individual borrowers, which is also known as concentration or address concentration risk, and the uneven distribution across industries or geographic locations (sector concentration). Another risk category are risks arising from the concentration of claims against through business linked undertakings. This results in the risk of contagion if one of these borrowers.

To avoid such risk concentrations exist to credit institutions which are to restrict or prevent the risk concentrations. In particular, the German Banking Act ( KWG) and the Solvency Regulation ( Solvency ) provide extensive credit rationing. In the area of ​​the German Banking Act, there are provisions on the limitation of large exposures (loans to a borrower ) and organ (loans to affiliated with the bank borrowers ), while the Solvency Regulation prescribes precise limits for individual borrowers species.

Large exposures

If a bank such risks, such as the allocation of large exposures to a single borrower, there is the risk that the failure of this individual debtor, the bank is in trouble as a whole. Then there is a two-stage threshold. First, the Bundesbank according to § 13 KWG loans to a borrower indicate that reach 10% of the liable capital of the credit institution or exceed. The absolute individual large exposure limit is 25 % of the liable capital. These are quantitative limitation standards, which are monitored by the Bundesbank.

Borrowing entity

Several legally independent bank- borrower must legally be treated as a single borrower, their loans are therefore summarize (eg, corporations, § 19 Section 2 of the Banking Act; see borrower unit ). The term of the borrowing entity in accordance with § 19 Section 2 of the Banking Act was due to the - irrefutable - rule examples in § 19 paragraph 2 sentence 2 of the Banking Act for the acquisition in the Solvency Regulation does not seem appropriate, since this might restrict too much the scope for the Institute. In addition, the selected term in the KWG scope goes well beyond the EU Directive setting out. For this reason, the Solvency chooses their own substantive implementation. Because the policy brief was the same in all areas, it was obvious to the legislator to use the term debtors alike entirety with credit risk mitigation techniques, and for the securitization arrangements. Credit institutions shall be free, we have used for the formation of the debtor populations borrowers units, they need to make 2 of the Banking Act in accordance with § 19 para.

In addition, on the settlement examples of § 19 paragraph 2 sentence 2 KWG more debtors populations possible because of the more liberal rules of the Solvency Regulation, because as a " lex specialis " the Solvency Regulation applies in relation to the Banking Act and to the extent a priority. Specifically, in § 4 para 8 Solvency A. F. demanded that banks have to summarize those borrowers for which financial difficulties of the borrower and payment difficulties would causally trigger for other borrowers. Since this provision is very general, here of all borrowers positively correlated with each other must be combined into a single borrower unit that would not fall under the previously described requirements of the German Banking Act. Through these summaries will prevent belonging to a single borrower risk group not considered as an individual risk, but are classified as overall risk.

Industry / region

However, concentrations of risk may also arise if a bank loans mainly to borrowers of a particular industry, region or specific countries forgives. The device industry, region or country due to the overall economic situation in difficulties, the Bank has been particularly affected. Again, the legislature prescribes that banks have to limit their risk types, respectively. In contrast to the maximum credit limits, however, are by law provided no fixed limits, but are often considered internally Institute (industry and country limits ).

Country risk concentration

In order to identify country risk concentrations early and prudentially monitor credit institutions 3 KWG messages have also due to the country risk regulation submitted to the foreign lending volume quarterly in accordance with § 25 para. This applies to credit institutions with which the credit volume exceeds 10 million euros to borrowers domiciled outside the European Economic Area, Switzerland, the U.S., Canada, Japan, Australia and New Zealand.

Prevent or reduce the concentration risk

This concentration risks arising from an uneven distribution of counterparties in credit or other business and / or sectoral or geographical business focus formation can thus generate large losses that the risk-bearing capacity of a credit institution may be at risk. Therefore, should be in the forefront of risk management policy at banks the goal of granularity.

Granularity

Contrast to the concentration risk is the granularity. Most banks try under the Granularitätsprinzips to spread the distribution of its loan portfolio is substantially wider on its borrower. A granularity of 2-5 % is the target here, that is, to a borrower / one industry / region accounts for a maximum of 2-5% of the liable capital of a credit institution. If a single borrower is insolvent, is to be expected due to the granularity of no great impact on the equity of a bank.

Outside of the banking business

Similarly, the term is also used in the insurance and asset management business or portfolio management. Here, the total assets or total assets ( TA) represents the reference parameter. Concentration risks in the asset management business are not as highly regulated, but there is, for example, in Switzerland, the world's largest offshore wealth management market, increasingly dense jurisdiction. Thus, it may be assumed roughly assume that it is all that is over 10% TA ( Total Asset ) to be a concentration of credit risk.

In the insurance business is spoken by analogy " Risikokumul ". The risk-reducing law of large numbers is in fact only be effective if the insured risks in terms of their loss occurring independently of each other. Therefore, a Risikokumul then there is in insurance, for example if a number of buildings in a city against damage from earthquakes are insured. The insured objects may not be threatened by the same events ( such as natural disasters ) for this reason. In reinsurance creates a Kumulschadenrisiko when multiple events occur at the same time, such a severe natural disaster and a stock market crash.