The Sensitivity of the Loss Given Default Rate to Systematic Risk: New Empirical Evidence on Bank Loans

Posted: 12 Jul 2008

See all articles by Stefano Gatti

Stefano Gatti

Bocconi University - Department of Finance

Stefano Caselli

Bocconi University - Department of Finance

Francesca Querci

Università degli Studi di Genova

Abstract

We verify the existence of a relation between loss given default rate (LGDR) and macroeconomic conditions by examining 11,649 bank loans concerning the Italian market. Using both the univariate and multivariate analyses, we pinpoint diverse macroeconomic explanatory variables for LGDR on loans to households and SMEs. For households, LGDR is more sensitive to the default-to-loan ratio, the unemployment rate, and household consumption. For SMEs, LGDR is influenced by the total number of employed people and the GDP growth rate. These findings corroborate the Basel Committee's provision that LGDR quantification process must identify distinct downturn conditions for each supervisory asset class.

Keywords: Loss given default rate, Bank loans, Systematic risk, New Basel Capital Accord

JEL Classification: G21, G28

Suggested Citation

Gatti, Stefano and Caselli, Stefano and Querci, Francesca, The Sensitivity of the Loss Given Default Rate to Systematic Risk: New Empirical Evidence on Bank Loans. Journal of Financial Services Research, Vol. 34, No. 1, August 2008 . Available at SSRN: https://ssrn.com/abstract=1144520

Stefano Gatti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Stefano Caselli

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Francesca Querci (Contact Author)

Università degli Studi di Genova ( email )

via Vivaldi 5
Genova, 16121
Italy

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