Students of systemic banking distress point to concentration in specific asset classes or sectors as one of the most important factors explaining these crises. The last two global crises are good examples: the simultaneous overexposure of several banks to the U.S. mortgage market initiated the global financial crisis `07–`08 and the overexposure of several banks to sovereign debt of distressed European countries severely deepened the European debt crisis of `11–`12. Given the importance of risk concentration in banking it is therefore surprising how little empirical evidence is available on the relationship between sectoral concentration and bank performance and stability. This absence of research is mainly explained with a lack of data. In recent work, we introduce a new methodology to measure sectoral specialization and differentiation and relate these measures to bank performance and stability (Beck, De Jonghe and Mulier, 2017).
- Financial Sector