The impact of foreign banks on monetary policy transmission: Evidence from the bank-level panel data in Korea

This paper examines the impact of foreign banks on the monetary policy transmission mechanism in the Korean economy during the period from 2000 to 2012, with a specific focus on the lending behavior of banks with different types of ownership. Using the bank-level panel data of the banking system in Korea, we present consistent evidence on the buffering impact that the foreign banks, especially foreign bank branches including U.S. bank branches, on the effectiveness of the monetary policy transmission mechanism in Korea from the bank-lending channel perspective during the global financial crisis of 2008-2009. One of the underlying reasons for the buffering effect by foreign bank branches is the existence of internal capital markets operated by multinational banks to overcome capital market frictions faced when the foreign banks finance their loans.