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

Youngjin Yun ()
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Youngjin Yun: Economic Research Institute, The Bank of Korea

No 2018-23, Working Papers from Economic Research Institute, 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.

Keywords: Foreign bank; Bank flows; Monetary policy; Macroprudential policy (search for similar items in EconPapers)
JEL-codes: G21 F34 F38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-ifn and nep-mac
Date: 2018-08-09
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http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2018-23.pdf Working Paper, 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1823

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