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BOK Working Paper No.2019-23, Systemic Risk of the Consumer Credit Network across Financial Institutions

Economic Research Institute (82-2-759-5308) 2019.09.16 3141

Title : Systemic Risk of the Consumer Credit Network across Financial Institutions
Author : Hyun Hak Kim(Kookmin University), Hosung Jung(BOK)


We investigate a network of financial institutions in Korea using the Korea Consumer Credit Panel (KCCP). The main contribution of this paper is that we construct the network of financial institution from the consumer credit level. We assume each consumer make a loan from multiple institutions so that those institutions share same risk from same consumer no matter of quality or type of loan. Then we construct the financial network between institutions and compute contagion index based on those multiple connection with a weight of default probability of individual borrowers. We found strong connection with banking institutions and credit card firms due to convenience in making small-amount loans with credit cards. However, when we give an weight with default probability to the linkage among institutions, connections of banking institution with savings bank, non-credit card finance corporation and merchant banking are stronger than others, while banking institution holds center position and has biggest amount of loans individually. Contagion index hit a peak in 2013Q1 and then fell rapidly, finally has been fluctuated in relatively low level from 2016 to 2017Q2. The result in our paper enables the authority to watch the systemic risk from consumer credit level with specific consumer type with their default probability.