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The role of foreign banks in monetary policy transmission: Evidence from Asia during the crisis of 2008–9

Bang Jeon and Ji Wu

Pacific-Basin Finance Journal, 2014, vol. 29, issue C, 96-120

Abstract: Since the 1997–8 Asian financial crisis, the level of foreign bank penetration has increased steadily in Asian banking markets. This paper examines the impact of foreign banks on the monetary policy transmission mechanism in emerging Asian economies during the period from 2000 to 2009, with a specific focus on the global financial crisis of 2008–9. We present consistent evidence that, on the whole, an increase in foreign bank penetration weakened the effectiveness of the monetary policy transmission mechanism in the host emerging Asian economies during crisis periods. We also investigate various conditions and environments, including the severity of shocks upon parent banks in the global crisis, the dependence of parent banks on the wholesale funding market, the country of origin of foreign banks, and entry modes, under which the effectiveness of monetary policy transmission is reduced more severely due to the increasing presence of foreign banks in the emerging Asian banking markets.

Keywords: Foreign bank; Monetary policy transmission; Financial crisis; Asian banking (search for similar items in EconPapers)
JEL-codes: E44 F43 G21 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:29:y:2014:i:c:p:96-120

DOI: 10.1016/j.pacfin.2014.03.005

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