TITLE:
Measuring the Systemic Risk of Regional Banks in Japan with PLS-SEM
AUTHORS:
Necmi K. Avkiran
KEYWORDS:
Systemic Risk, Shadow Banking, Regulated Banking, Regional Banks, Japan
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.11,
August
2,
2018
ABSTRACT: I embark to measure the systemic risk of regional
banks in Japan through shadow banking (microlevel and macrolevel linkages)
using partial least squares structural equation modeling (PLS-SEM).
Non-parametric PLS-SEM is used for the first time in the context of Japanese
banks. I collect indicator-based data from Orbis Bank Focus but do not find all
the indicators suggested by theory. Results indicate systemic risk is explained
by 12.5% of shadow banking. I use generalized structured component analysis
(GSCA) for robustness test because it belongs to the same family of methods as
PLS-SEM; PLS-SEM results are confirmed by GSCA. Regulators need to collect more
data regarding shadow banking activities in relation to regional banks in
Japan. The missing indicators are critical for explaining systemic risk in
regional banks through shadow banking. Once more data are available,
researchers can explore whether shadow banking has a substantial effect on the
systemic risk of regional banks in Japan.