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Empirical Evidence on "Systemic as a Herd": The Case of Japanese Regional Banks

Naohisa Hirakata (), Yosuke Kido () and Jie Liang Thum
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Jie Liang Thum: Monetary Authority of Singapore

No 17-E-1, Bank of Japan Working Paper Series from Bank of Japan

Abstract: 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.

Keywords: Systemic risk; Herd behavior; Market risk factors; CoVaR (search for similar items in EconPapers)
JEL-codes: D21 G28 G32 G38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-rmg, nep-sea and nep-ure
Date: 2017-01-12
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