Bank Wholesale Funding and Credit Procyclicality:Evidence from Korea
AbstractCredit procyclicality has recently been the focus of considerable attention, but what fuels the often excessive credit growth is rarely questioned. We investigate the relationship between the composition of banksâ€™ liabilities and their credit procyclicality. After examining the macroeconomic context where banks rely increasingly on wholesale funding (WSF), we estimate the effect of WSF on the banksâ€™ credit growth using quarterly panel data for the commercial banks of Korea from 2000 to 2011. We find that a higher sensitivity of banksâ€™ WSF to the business cycle leads to an excessive response of credit growth to the business cycle, even with a low share of WSF on bank liabilities. On the other hand, we find that overseas WSF has a more marked effect on credit procyclicality, which may additionally exacerbate the financial fragility of export-led emerging economies.
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Bibliographic InfoArticle provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.
Volume (Year): 60 (2013)
Issue (Month): 5 (September)
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Web page: http://www.panoeconomicus.rs/
Credit procyclicality; Wholesale funding; Financial fragility;
Other versions of this item:
- Jeong, Sangjun & Jung, Hueechae, 2011. "Banks' wholesale funding and credit procyclicality: evidence from Korea," MPRA Paper 35568, University Library of Munich, Germany.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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