The paper tries to make both a contribution to methodology and tests specific hypotheses. First, we construct measures of sectoral concentration along three dimensions: specialization (capturing high exposures),
differentiation (capturing deviation from peer banks), and financial sector exposure (capturing direct connectedness), using a method used in the mutual fund literature. Typically, researchers had to rely on credit registries for a specific country to compute
such measures. Our measures, on the other hand, we capture more than lending exposure of banks. Specifically, our measures also take into account banks' securities holdings and derivative positions through which banks might hedge excessive sectoral lending
exposures (or, alternatively, create such positions when there is no sectoral lending exposure). Furthermore, they also account for sectoral exposures at the liability side of banks' balance sheets (e.g. sectoral concentration in corporate deposits).