Open Access

Could Regional and Cantonal Banks Reduce Credit Risk through National Diversification?

  • Bertrand Rime1
Swiss Journal of Economics and Statistics2007143:BF03399233

Published: 29 December 2007


This paper estimates the reduction of credit risk that can be achieved in Switzerland through a national diversification of bank lending. Using a credit risk model based on corporate default rates, we find that the risk of a nationally diversified loan portfolio can be up to 20% smaller than the average of the risks of cantonal portfolios. From a financial stability perspective, this substantial risk diversification potential should motivate particular scrutiny on the more than hundred Swiss banks staying on the regional business model.

Key words

diversificationeconomic capitalconsolidation


Authors’ Affiliations

Financial Stability Section, Swiss National Bank, Zurich, Switzerland


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© Schweizerische Zeitschrift für Volkswirtschaft und Statistik 2007