In this paper we stress-test credit portfolios of 28 German banks based on a Mertontype multi-factor credit risk model. The ad-hoc stress scenario is an economic downturn in the automobile industry that constitutes an exceptional but plausible event suggested by historical data. Rather than on a...

Theory of financial intermediation gives contradicting answers to the question whether banks should diversify or focus their loan portfolios. Our aim is to find out which of the two strategies is predominant in the German banking market. To this end we measure diversification for all German...