International Banking and Cross-Border Effects of Regulation: Lessons from Korea

This paper analyzes the inward spillover effects of overseas prudential policy changes through foreign bank affiliates in Korea. We do not find strong evidence of inward spillover effects: in general, a change in the prudential policies in the home countries of foreign bank affiliates has not led to significant changes in the lending behaviors of the bank affiliates in Korea. However, for some prudential measures such as sectoralspecific capital buffers and reserve requirements, we observe negative correlations between home countries’ tightening of those instruments and the changes in their lending.