Granular Borrowers

Abstract

This paper uses a credit registry covering the quasi universe of firm-bank relationships in France for the period 1999-2016 to provide a detailed account of the role of very large borrowers ("granular borrowers") in shaping bank-level and aggregate credit variations. We document that the distribution of borrowers is fat-tailed, the top 100 borrowers making up on average for 18% of the aggregate amount of long-term credit and 64% of total undrawn credit lines. We adapt the methodology of Amiti and Weinstein (2018) to identify the contributions of firm, bank, and aggregate shocks to credit variations at any level of aggregation. At the macroeconomic level, we show that the aggregate properties of credit largely reflect the idiosyncratic shocks of granular borrowers. This finding highlights the limitations of using time series of aggregate credit to assess the magnitude of financial frictions in the economy. At the bank-level, we find that the concentration of the portfolio of credit lines exposes lenders to considerable borrower idiosyncratic risk and leads liquidity flows to be more synchronized across banks. This suggests that shocks on granular borrowers may represent a source of systemic risk.

Keywords: granularity, bank concentration, cyclicality of credit, liquidity risk

JEL Classification: E32, E51, G21