Empirical Evidence on "Systemic as a Herd": The Case of Japanese Regional Banks
January 12, 2017
Jie Liang Thum*3
We examine a sample of Japanese regional banks and explore whether exposure to market risk factors affects systemic risk through a banks' portfolio composition or revenue source, using Adrian and Brunnermeier's (2016) CoVaR to proxy for systemic risk. We find evidence of "systemic as a herd" behavior among Japanese regional banks, as portfolio and revenue components associated with market activities exert positive and significant impacts on systemic risk by generating higher comovement among banks, even though they reduce standalone bank risk through portfolio diversification. Further, the marginal effect of an increase in a given banks' market-related components on systemic risk is larger when the share of the corresponding components is already high among other banks. Our results have important implications from the macro-prudential perspective.
D21; G28; G32; G38; G62
Systemic risk; Herd behavior; Market risk factors; CoVaR
We are grateful for the helpful comments from Hibiki Ichiue, Takeshi Kimura, Yoshihiro Komaki, Hitoshi Mio, and staff of the Bank of Japan. The views expressed herein are those of the authors alone and do not necessarily reflect those of the Bank of Japan or the Monetary Authority of Singapore.
- *1Financial System and Bank Examination Department, Bank of Japan
E-mail : firstname.lastname@example.org
- *2Financial System and Bank Examination Department, Bank of Japan
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- *3Monetary Authority of Singapore
E-mail : THUM_Jie_Liang@mas.gov.sg
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