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Reserve accumulation and bank lending: Evidence from Korea

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  • Yun, Youngjin

Abstract

Sterilized reserve accumulation reduces room for loans in bank balance sheets by unloading sterilization securities on them, and hence, it may deter loan growth. The effect would be more significant to the banks participating in the primary market for sterilization securities. Using monthly bank-level data for Korea during its massive reserve accumulation period (2003–2008), this paper finds evidence for a crowding-out effect of reserve accumulation. It finds that loan growth rates decline significantly after reserve accumulation, and that the decline is larger in primary dealer banks and foreign bank branches than in non-primary dealer banks and domestic banks, respectively. The results yield the important policy implication that reserve accumulation could work against expansionary effects of capital inflows by mitigating credit expansion and leverage buildup.

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  • Yun, Youngjin, 2020. "Reserve accumulation and bank lending: Evidence from Korea," Journal of International Money and Finance, Elsevier, vol. 105(C).
    • Handle: RePEc:eee:jimfin:v:105:y:2020:i:c:s0261560618304078
    DOI: 10.1016/j.jimonfin.2020.102158
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    More about this item

    Keywords

    Foreign exchange reserves; Sterilization; Crowding-out; Bank lending;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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