Banks face a tradeoff between diversifying and focusing their loan portfolio. In this paper we carry out an empirical study for the German market to shed light on the question whether or not the benefits of risk sharing outweigh those of specialization. We use data from the Bundesbank's...

Banking supervision requires regular inspection and assessment of financial institutions. In Germany this task is carried out by the central bank (“Deutsche Bundesbank, BBK”) in cooperation with the Federal Financial Supervisory Authority (“Bundesanstalt für Finanzdienstleistungsaufsicht,...

Using a unique data set on German banks' sector specific loan exposures to the real economy and the corresponding write-offs and write-downs, we examine the impact of loan portfolio sector concentration on credit risk. By controlling for common risk factors, we separate the bank-specific...