The Impact of Foreign Bank Deleveraging on Korea

22 Pages Posted: 8 Jun 2013

See all articles by Sonali Jain-Chandra

Sonali Jain-Chandra

Columbia University - Graduate School of Arts and Sciences - Department of Economics

Min Jung Kim

affiliation not provided to SSRN

Sung Ho Park

Yonsei University, Wonju Campus

Jerome Shin

The Bank of Korea

Multiple version iconThere are 2 versions of this paper

Date Written: May 2013

Abstract

Korea was hit hard by the 2008 global financial crisis, with the foreign bank deleveraging channel coming prominently into play. The global financial crisis demonstrated that a sharp deleveraging can be transmitted to emerging markets through the bank lending channel to a slowdown in credit growth. The analysis finds that a sharp decline in external funding led to relatively modest decline in domestic credit by Korean banks, due to concerted policy efforts by the government in 2008. Impulse responses from a Dynamic Stochastic General Equilibrium (DSGE) model calibrated to Korea shows that it appears better prepared to handle such shocks relative to 2008. Indeed, Korea is much more resilient to such shocks due to the efforts by the authorities, which has led to the strengthening of external buffers, such as higher foreign exchange reserves and bilateral and multilateral currency swap arrangements.

Keywords: International banks, Korea, Republic of, Global Financial Crisis 2008-2009, External shocks, Banking sector, Liquidity, Financial crisis, Economic models, Global banks, liquidity shock, cross-border lending, domestic banks, foreign bank, external funding, foreign banks, foreign assets, international settlements, intermediate goods, open economy, investment goods, domestic goods, foreign exchange, imported goods, foreign currency, foreign branches, domestic economy, foreign exchange reserves, foreign asset, return on capital, world economy, net exports, net foreign assets, country of origin, short-term debt, imported good

JEL Classification: G20, E30, E50

Suggested Citation

Jain-Chandra, Sonali and Kim, Min Jung and Park, Sung Ho and Shin, Jerome, The Impact of Foreign Bank Deleveraging on Korea (May 2013). IMF Working Paper No. 13/101, Available at SSRN: https://ssrn.com/abstract=2276337

Sonali Jain-Chandra (Contact Author)

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

Min Jung Kim

affiliation not provided to SSRN

Sung Ho Park

Yonsei University, Wonju Campus ( email )

Wonju
Korea

Jerome Shin

The Bank of Korea

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

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