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
Date Written: April 11, 2014
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: Suggested Citation