Bank Wholesale Funding and Credit Procyclicality:Evidence from Korea
Sangjun Jeong () and
Hueechae Jung ()
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Hueechae Jung: Monetary Policy and Markets Department, Bank of Korea, Korea
Panoeconomicus, 2013, vol. 60, issue 5, 615-631
Credit 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.
Keywords: Credit procyclicality; Wholesale funding; Financial fragility (search for similar items in EconPapers)
JEL-codes: E44 G21 G28 (search for similar items in EconPapers)
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Working Paper: Banks' wholesale funding and credit procyclicality: evidence from Korea (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:voj:journl:v:60:y:2013:i:5:p:615-631
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