The Role of Foreign Banks in Monetary Policy Transmission: Evidence from Asia During the Crisis of 2008-9

Posted: 10 Aug 2012 Last revised: 30 Sep 2015

See all articles by Bang Nam Jeon

Bang Nam Jeon

Drexel University - Department of Economics & International Business

Ji Wu

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

Multiple version iconThere are 2 versions of this paper

Date Written: Augest 17, 2012

Abstract

Since the 1997-8 Asian financial crisis, the level of foreign bank penetration has increased steadily in Asian banking markets. This paper examines the impact of foreign banks on the monetary policy transmission mechanism in emerging Asian economies during the period from 2000 to 2009, with a specific focus on the global financial crisis of 2008-9. We present consistent evidence that on the whole, an increase in foreign bank penetration weakened the effectiveness of the monetary policy transmission mechanism in the host emerging Asian countries during crisis periods. We also investigate various conditions and environments, including the type of monetary policy shocks, the severity of shocks upon parent banks in global crisis, the dependence of parent banks on the wholesale funding market, country of origin of foreign banks, and entry modes, under which the effectiveness of monetary policy transmission is reduced more severely due to the increasing presence of foreign banks in the emerging Asian banking markets.

Keywords: Foreign bank penetration, Monetary policy transmission, Asian banking

JEL Classification: E44, F43, G21

Suggested Citation

Jeon, Bang Nam and Wu, Ji, The Role of Foreign Banks in Monetary Policy Transmission: Evidence from Asia During the Crisis of 2008-9 (Augest 17, 2012). Available at SSRN: https://ssrn.com/abstract=2127496 or http://dx.doi.org/10.2139/ssrn.2127496

Bang Nam Jeon (Contact Author)

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

3141 Chestnut St.
Philadelphia, PA 19104
United States

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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