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

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  • Youngjin Yun

    (Economic Research Institute, The Bank of Korea)

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.

Suggested Citation

  • Youngjin Yun, 2018. "Cross-Border Bank Flows through Foreign Branches: Evidence from Korea," Working Papers 2018-23, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1823
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    File URL: http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2018-23.pdf
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    References listed on IDEAS

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    Cited by:

    1. JaeBin Ahn & Youngju Kim & Hyunjoon Lim, 2022. "For Whom the Levy Tolls: The Case of a Macroprudential Stability Levy in South Korea," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(3), pages 520-559, September.
    2. Soohyon Kim, 2018. "Determinants of Capital Flows in the Korean Bond Market," Working Papers 2018-44, Economic Research Institute, Bank of Korea.

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    More about this item

    Keywords

    Foreign bank; Bank flows; Monetary policy; Macroprudential policy;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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