Empirical Evidence on “Systemic as a Herd”: The Case of Japanese Regional Banks
Abstract
This paper examines a sample of Japanese regional banks’ exposure to market risk factors and how it affects systemic risk through 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” behaviour 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.
Related Publications
-
Staff PapersPublished Date: 11 February 2020
Cyber Risk Surveillance: A Case Study of Singapore
MAS Staff Paper No. 57, February 2020 - By Joseph Goh, Heedon Kang, Zhi Xing Koh, Jin Way Lim, Cheng Wei Ng, Galen Sher, and Chris Yao
-
Staff PapersPublished Date: 07 November 2019
Effects of Dark Trading on Liquidity of Singapore Equity Market
MAS Staff Paper No. 56, November 2019 - By Chioh Wenn Sheng, Chua Bing Kiat, Andrew Ang, Fan Jia Rong and Brandon Sim
-
Staff PapersPublished Date: 16 December 2016
Liquidity and Policy Analyses for Platform Trading of OTC Derivatives: A Perspective of Smaller Markets
MAS Staff Paper No. 54, December 2016 - By Jerome Chow, Jonathan Tan, Justin Wong