The Impact of Foreign Bank Deleveraging on Korea

By Sonali Jain-Chandra, Min Jung Kim, Sung Ho Park, Jerome Shin

May 8, 2013

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Sonali Jain-Chandra, Min Jung Kim, Sung Ho Park, and Jerome Shin. The Impact of Foreign Bank Deleveraging on Korea, (USA: International Monetary Fund, 2013) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Bank credit, Banking, Domestic credit, Financial crises, Financial institutions, Foreign banks, Global financial crisis of 2008-2009, Housing, Money, National accounts

Keywords: Asia and Pacific, Bank credit, Capitalized bank, Credit supply, Cross-border lending, Domestic bank, Domestic credit, Europe, Exchange rate, Exposure to Korea, Foreign banks, Global, Global banks, Global financial crisis of 2008-2009, Housing, Liquidity shock, Panel regression, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/101
Stock No:

WPIEA2013101
ISBN:

9781484363737
ISSN:

1018-5941

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