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Bank herding and systemic risk

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  • Cai, Jin

Abstract

Bank herding behavior is often hypothesized to increase systemic risk, but the actual effect is unclear ex-ante from the theory and unknown ex-post from the data. We expand the literature on this topic in several dimensions – posing alternative hypotheses regarding the effects of herding in asset, liability, and off-balance sheet portfolios; developing a novel set of bank-specific, time-varying measures of herding in these portfolios; and empirically testing the relations between bank herding for all three portfolios and bank systemic risk contributions. We find nuanced empirical results that differ by portfolio, bank size class, and periods before versus after TARP.

Suggested Citation

  • Cai, Jin, 2022. "Bank herding and systemic risk," Economic Systems, Elsevier, vol. 46(4).
    • Handle: RePEc:eee:ecosys:v:46:y:2022:i:4:s0939362522001042
    DOI: 10.1016/j.ecosys.2022.101042
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    More about this item

    Keywords

    Bank herding; Similarity; Systemic risk; Financial crises;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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