A model of bank lending in the global financial crisis and the case of Korea
This paper studies two interrelated banking sector issues in the context of the global financial crisis and its impact on Korea: (i) To what extent did state owned banks expand lending to offset declining credit as private sector bank balance sheets deteriorated? (ii) In the recent crisis, was bank lending constrained because of funding or liquidity factors? To address these issues, a framework of optimal bank lending is presented in which banks face adverse selection in a market for risky investment projects, pay regulatory costs, and borrow in wholesale and traditional funding markets. The model implications are tested on bank-level data with a focus on the global financial crisis. The results point to significant credit expansion by public sector banks in response to deteriorating international credit conditions. Estimates of private sector lending during the crisis suggest that, at best, the credit crunch was less profound than it could have been. Wholesale funding is not found to have been a major driver of deteriorating credit conditions in Korea, reflecting, at least in part, strong policy support from the authorities during the crisis.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Huang, Rocco & Ratnovski, Lev, 2011.
"The dark side of bank wholesale funding,"
Journal of Financial Intermediation,
Elsevier, vol. 20(2), pages 248-263, April.
- Lev Ratnovski & Rocco Huang, 2010. "The Dark Side of Bank Wholesale Funding," IMF Working Papers 10/170, International Monetary Fund.
- Huang, Rocco & Ratnovski, Lev, 2010. "The dark side of bank wholesale funding," Working Paper Series 1223, European Central Bank.
- Rocco Huang & Lev Ratnovski, 2009. "The dark side of bank wholesale funding," Working Papers 09-3, Federal Reserve Bank of Philadelphia, revised 01 Jun 2010.
- Acharya, Viral V & Gale, Douglas M & Yorulmazer, Tanju, 2009.
"Rollover Risk and Market Freezes,"
CEPR Discussion Papers
7122, C.E.P.R. Discussion Papers.
- Madhavan, Ananth & Smidt, Seymour, 1993. " An Analysis of Changes in Specialist Inventories and Quotations," Journal of Finance, American Finance Association, vol. 48(5), pages 1595-1628, December.
- Foucault, Thierry, 1999. "Order flow composition and trading costs in a dynamic limit order market1," Journal of Financial Markets, Elsevier, vol. 2(2), pages 99-134, May.
- Blanchard, Olivier J, 1985.
"Debt, Deficits, and Finite Horizons,"
Journal of Political Economy,
University of Chicago Press, vol. 93(2), pages 223-247, April.
- Rafael La Porta & Florencio Lopezde-Silanes & Andrei Shleifer, 2000.
"Government Ownership of Banks,"
NBER Working Papers
7620, National Bureau of Economic Research, Inc.
- Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer, 2000. "Government Ownership of Banks," Harvard Institute of Economic Research Working Papers 1890, Harvard - Institute of Economic Research.
- La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "Government Ownership of Banks," Working Paper Series rwp01-016, Harvard University, John F. Kennedy School of Government.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2008.
"This Time is Different: A Panoramic View of Eight Centuries of Financial Crises,"
NBER Working Papers
13882, National Bureau of Economic Research, Inc.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 1065-1188, November.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," CEMA Working Papers 595, China Economics and Management Academy, Central University of Finance and Economics.
- Rafael Repullo, 2004. "Policies For Banking Crises: A Theoretical Framework," Working Papers wp2004_0418, CEMFI.
- Repullo, Rafael, 2004. "Policies for Banking Crises: A Theoretical Framework," CEPR Discussion Papers 4727, C.E.P.R. Discussion Papers.
- Rafael Romeu, 2010. "Price Discovery in Markets with Multiple Dealers," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 450-483, June.
- Barth, James R. & Caprio Jr, Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
- Huang, R. & Ratnovksi, L., 2009. "The Dark Side of Bank Wholesale Funding," Discussion Paper 2009-59 S, Tilburg University, Center for Economic Research.
- Franklin Allen & Ana Babus & Elena Carletti, 2009. "Financial Crises: Theory and Evidence," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 97-116, November.
- Clarke, George R.G. & Cull, Robert & Shirley, Mary M., 2005. "Bank privatization in developing countries: A summary of lessons and findings," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 1905-1930, August.
When requesting a correction, please mention this item's handle: RePEc:eee:asieco:v:22:y:2011:i:4:p:322-334. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.