Foreign Banks, Liquidity and International Capital Flows: Evidence from Korea

53 Pages Posted: 25 Jan 2018

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: January 25, 2018

Abstract

This paper documents and analyzes the increasing role of foreign banks in Korea in recent years. Using macroeconomic and banking data for the period of 2000Q1-2016Q2, we present evidence that foreign bank branches in Korea have responded to the changes in monetary policies in their home countries (the US, in particular) in providing foreign currency loans and affecting the direction and magnitude of international capital flows via the banking sector in Korea. As the monetary policy interest rate gap between (1) Korea (BOK base rates) and (2) the U.S. (the fed funds rates) increases in favor of Korea, foreign banks’ foreign currency loans in Korea have increased with a one quarter (3-month) lag time period. Cross-border bank loans and international capital flows via the banking sector in Korea have also shown a similar pattern of lagged responses to monetary policy shocks transmitted from the U.S. to Korea. The paper also derives important policy implications.

Keywords: Global banks, foreign banks, international capital flows

JEL Classification: F3, G2

Suggested Citation

Jeon, Bang Nam and Lim, Hosung and Wu, Ji, Foreign Banks, Liquidity and International Capital Flows: Evidence from Korea (January 25, 2018). Available at SSRN: https://ssrn.com/abstract=3109271 or http://dx.doi.org/10.2139/ssrn.3109271

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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