Abstract
AbstractThis paper outlines a framework based on microdata and a structural model to gauge credit risk in banks’ exposures to non‐financial firms. Sectoral risk factors are accounted for using a multi‐factor model. We use expected and unexpected losses as indicators of credit risk stemming from the corporate sector as a whole, and we put forward a measure of systemic risk relevance of economic sectors. We apply the model to the Italian economy, showing the sensitivity of credit risk indicators to different characteristics of default risk, cyclicality and concentration of economic sectors.
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