Credit Concentration Risk & HHI Calculator
Model Herfindahl-Hirschman Index (HHI), single-obligor limits, equivalent borrower diversification (N*), and Basel Pillar 2 granularity capital add-ons.
Portfolio & Obligor Parameters
Concentration & Capital Analytics
EvaluatingPortfolio Concentration Analysis
The portfolio exhibits moderate concentration with an HHI of 382, equivalent to 26 identical borrowers.
| Concentration Metric | Exposure ($M) | Portfolio Share | Benchmark Reference |
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Top 10 Obligor Exposure Detail & Regulatory Test
| Rank | Exposure ($M) | Portfolio Share (%) | % of Tier 1 Capital | HHI Points | OCC 15% Limit | Basel 25% Large Exp |
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Sensitivity Matrix: Largest Obligor Share vs. Total Portfolio HHI
Evaluates portfolio HHI and Equivalent Borrowers (N*) across variations in Top 1 Obligor exposure and portfolio size.
Credit Risk & Concentration Knowledge Check
Frequently Asked Questions
What is the Herfindahl-Hirschman Index (HHI) in credit risk?
The Herfindahl-Hirschman Index (HHI) measures concentration in a loan portfolio. It is calculated as HHI = 10,000 * Sum(s_i^2), where s_i is each obligor's share of total portfolio exposure. Scores range from near 0 for infinitely granular retail books up to 10,000 for a single borrower. Portfolios with HHI below 100 are considered highly diversified, between 100 and 500 moderately concentrated, and above 1,800 severely concentrated.
What is the effective number of equal-sized borrowers (N*)?
The effective number of equal-sized borrowers, denoted N* = 1 / Sum(s_i^2) = 10,000 / HHI, translates portfolio concentration into an intuitive equivalent. An HHI of 500 means the portfolio carries the same idiosyncratic default risk as a portfolio composed of exactly N* = 20 identical borrowers, while an HHI of 2,000 reflects just 5 equivalent borrowers.
What is the regulatory single-obligor legal lending limit?
Under US OCC regulations (12 CFR Part 32) and Federal Reserve rules, a national bank's total unsecured loans to a single borrower cannot exceed 15% of the bank's unimpaired Tier 1 and Tier 2 capital (up to 25% if fully secured by readily marketable collateral). Under Basel III Large Exposure standards, exposure to a single counterparty or connected group cannot exceed 25% of Tier 1 Capital.
Why is Basel Pillar 2 Granularity Adjustment necessary?
Basel Pillar 1 capital models (such as the Asymptotic Single Risk Factor framework) assume an infinitely granular portfolio where idiosyncratic risk is completely diversified away. For banks with large single-name corporate or commercial real estate exposures, this assumption fails. Pillar 2 supervisory frameworks require an internal Granularity Adjustment (GA) capital add-on to cover residual idiosyncratic default risk.