This paper aims to analyse the exposure at default (EAD) in the event of multiple banking relationships to understand the differences with respect to solo banking relationships and forecast the banks risk exposure.
The paper uses a unique database provided by the Italian public credit register representative of the full Italian market before the financial crisis. The analysis compares different EAD risk proxies for debtors with unique and multiple banking relationships to underline the main differences among the two groups.
Results show that EAD forecast could be improved considering the existence of exposures with other lenders and banks that consider such type of information can reduce the risk of underestimating the risk exposure of a debtor.
The paper is the first attempt to model the EAD on the basis of the existence of multiple lending exposures. Results demonstrate a different lender’s risk exposure for debtors with multiple credit risk exposure and show the usefulness of the information about the overall system exposure in evaluating the risk exposure related to this type of customers.
