The Impact of Foreign Banks on Monetary Policy Transmission during the Global Financial Crisis of 2008-2009: Evidence from Korea

31 Pages Posted: 28 Mar 2015

See all articles by Bang Nam Jeon

Bang Nam Jeon

Drexel University - Department of Economics & International Business; Drexel University-School of Economics

Hosung Lim

The Bank of Korea; Bank of Korea - Economic Research Institute

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management; Pennsylvania State University Harrisburg

Date Written: April 11, 2014

Abstract

This paper examines the impact of foreign banks on the monetary policy transmission mechanism in the Korean economy during the period from 2000 to 2012, with a specific focus on the lending behavior by banks with different types of ownership. Using the bank-level panel data of the banking system in Korea, we present consistent evidence on the buffering impact of foreign banks, especially foreign bank branches including American bank branches, on the effectiveness of the monetary policy transmission mechanism in Korea from the bank-lending channel perspective during the period of the global financial crisis of 2008-2009.

Findings of this paper suggest that foreign bank branches reduced their lending when the Bank of Korea lowered its base rate substantially to conduct expansionary monetary policy during the global financial crisis period. One of the underlying reasons for this buffering effect by foreign branches is the existence of internal capital markets operated by multinational banks to overcome capital market frictions faced when the foreign banks finance their loans.

Keywords: foreign banks, monetary policy transmission, financial crisis

JEL Classification: G21, E52, G01

Suggested Citation

Jeon, Bang Nam and Lim, Hosung and Wu, Ji, The Impact of Foreign Banks on Monetary Policy Transmission during the Global Financial Crisis of 2008-2009: Evidence from Korea (April 11, 2014). Bank of Korea WP 2014-8, Available at SSRN: https://ssrn.com/abstract=2580602 or http://dx.doi.org/10.2139/ssrn.2580602

Bang Nam Jeon (Contact Author)

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Drexel University-School of Economics ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Hosung Lim

The Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

Bank of Korea - Economic Research Institute ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun St
Chengdu, Sichuan 610074
China

Pennsylvania State University Harrisburg ( email )

777 West Harrisburg Pike
Middletown, PA 17057
United States

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