The Impact of Foreign Bank Deleveraging on Korea

31 Pages Posted: 11 Apr 2015

See all articles by Sonali Jain-Chandra

Sonali Jain-Chandra

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

Min Jung Kim

The Bank of Korea

Sung Ho Park

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

Jerome Shin

The Bank of Korea

Multiple version iconThere are 2 versions of this paper

Date Written: December 4, 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: Global banks, liquidity shock, cross-border lending

JEL Classification: G02, E03, E05

Suggested Citation

Jain-Chandra, Sonali and Kim, Min Jung and Park, Sung Ho and Shin, Jerome, The Impact of Foreign Bank Deleveraging on Korea (December 4, 2013). Bank of Korea WP 2013-25, Available at SSRN: https://ssrn.com/abstract=2592809 or http://dx.doi.org/10.2139/ssrn.2592809

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

The Bank of Korea ( email )

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

Sung Ho Park

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)

Jerome Shin

The Bank of Korea

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

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