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Do Foreign Bank Operations Provide a Stabilizing Influence in Korea?

  • Yongil Jeon

    (Central Michigan University)

  • Stephen M. Miller

    (University of Nevada, Las Vegas, and University of Connecticut)

  • Paul A. Natke

    (Central Michigan University)

This paper examines Korean data (1994-2001) to determine if foreign banks behave differently than domestic banks and if that behavior provides a stabilizing influence on the Korean banking system and economy. Moreover, this paper also considers the effect, if any, of the Asian financial crisis on foreign and domestic bank behavior. Foreign banks. financial ratios differ from Korean banks with two notable exceptions: provisions for loan losses and loan growth. Before the Asian financial crisis, all banks. loans generally were unresponsive to Korean market conditions. Once the crisis began, foreign banks reduce total lending. Foreign banks increase and Korean banks decrease won-denominated loans when Korean GDP growth increases and when Korean interest rates increase. Finally, foreign banks. lending is sensitive to changes in home-country conditions.

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File URL: http://web2.uconn.edu/economics/working/2004-21.pdf
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2004-21.

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Length: 29 pages
Date of creation: Aug 2003
Date of revision:
Publication status: Published in the Quarterly Review of Economics and Finance, February 2006, 82-109.
Handle: RePEc:uct:uconnp:2004-21
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Web page: http://www.econ.uconn.edu/

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  1. Jennifer S. Crystal & B. Gerard Dages & Linda S. Goldberg, 2002. "Has foreign bank entry led to sounder banks in Latin America?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 8(Jan).
  2. Reinhart, Carmen & Kaminsky, Graciela, 2001. "Bank Lending and Contagion: Evidence from the Asian Crisis," MPRA Paper 7580, University Library of Munich, Germany.
  3. Paolo Pesenti & Cedric Tille, 2000. "The economics of currency crises and contagion: an introduction," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 3-16.
  4. Barth, James R. & Caprio Jr., Gerard & Levine, Ross, 2001. "Bank regulation and supervision : what works best?," Policy Research Working Paper Series 2725, The World Bank.
  5. DeYoung, Robert & Nolle, Daniel E, 1996. "Foreign-Owned Banks in the United States: Earning Market Share or Buying It?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 622-36, November.
  6. Linda S. Goldberg, 2001. "When Is U.S. Bank Lending to Emerging Markets Volatile?," NBER Working Papers 8209, National Bureau of Economic Research, Inc.
  7. Marcus Noland, 2000. "Avoiding the Apocalypse: The Future of the Two Koreas," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 94.
  8. B. Gerard Dages & Linda Goldberg & Daniel Kinney, 2000. "Foreign and domestic bank participation in emerging markets: lessons from Mexico and Argentina," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 17-36.
  9. Jahyeong Koo & Sherry L. Kiser, 2001. "Recovery from a financial crisis: the case of South Korea," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q IV, pages 24-36.
  10. Aaron Tornell, 2001. "Lending Booms and Currency Crises: Empirical Link," NBER Chapters, in: Regional and Global Capital Flows: Macroeconomic Causes and Consequences, NBER-EASE Volume 10, pages 47-67 National Bureau of Economic Research, Inc.
  11. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
  12. Takatoshi Ito & Anne O. Krueger, 2001. "Regional and Global Capital Flows: Macroeconomic Causes and Consequences, NBER-EASE Volume 10," NBER Books, National Bureau of Economic Research, Inc, number ito_01-1, May.
  13. Dongchul Cho & Kiseok Hong, 2001. "Currency Crisis of Korea: Internal Weakness or External Interdependence?," NBER Chapters, in: Regional and Global Capital Flows: Macroeconomic Causes and Consequences, NBER-EASE Volume 10, pages 337-373 National Bureau of Economic Research, Inc.
  14. Gilbert, R. Alton & Wilson, Paul W., 1998. "Effects of Deregulation on the Productivity of Korean Banks," Journal of Economics and Business, Elsevier, vol. 50(2), pages 133-155, March.
  15. Joon-Ho Hahm & Frederic S. Mishkin, 2000. "Causes of the Korean Financial Crisis: Lessons for Policy," NBER Working Papers 7483, National Bureau of Economic Research, Inc.
  16. Miller, Merton, 1998. "Asian financial crisis," Japan and the World Economy, Elsevier, vol. 10(3), pages 355-358, July.
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