Cross-Border Bank Flows Through Foreign Branches: Evidence from Korea

39 Pages Posted: 8 Aug 2018

See all articles by Youngjin Yun

Youngjin Yun

Bank of Korea - Economic Research Institute

Date Written: August 9, 2018

Abstract

Global banks play an important role in international monetary transmission by allocating funds across the world through their foreign affiliates. Using monthly data on individual foreign bank branches in Korea from 2004 to 2018, this paper investigates the effects of foreign monetary policies and Korean macroprudential policy on the cross-border capital flows between global banks' headquarters and their Korean branches. I find that foreign branches reduce borrowing from their headquarters by 2.4% of their assets after a one percentage point hike in the home-country policy rates. The effect is more significant for the branches with higher loan-to-asset ratios as their asset maturities are longer. Korea introduced leverage caps on banks' FX derivative positions in 2010, and has been adjusting the cap depending on the macroeconomic situation. I find that lowering the cap makes foreign branches increase capital by receiving long-term capital from headquarters. The branches with higher bond-to-asset ratios respond more as they trade heavily in FX derivatives.

Keywords: Foreign bank, Bank flows, Monetary policy, Macroprudential policy

JEL Classification: G21, F34, F38

Suggested Citation

Yun, Youngjin, Cross-Border Bank Flows Through Foreign Branches: Evidence from Korea (August 9, 2018). Bank of Korea WP 2018-23. Available at SSRN: https://ssrn.com/abstract=3228947 or http://dx.doi.org/10.2139/ssrn.3228947

Youngjin Yun (Contact Author)

Bank of Korea - Economic Research Institute ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

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