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Banks' wholesale funding and credit procyclicality : Evidence from Korea

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  • Banks' wholesale funding and credit procyclicality
  • Jeong, Sangjun; Jung, Hueechae
  • Munich Personal RePEc Archive


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Title Banks' wholesale funding and credit procyclicality
Similar Titles
Sub Title

Evidence from Korea

Material Type Reports
Author(English)

Jeong, Sangjun; Jung, Hueechae

Publisher

[Munich]:Munich Personal RePEc Archive

Date 2011-12
Series Title; No MPRA Paper / 35568
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Financial Policy
Economy < Economic Administration
Holding Munich Personal RePEc Archive

Abstract

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 banks' 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 banks’ credit growth using panel data for the commercial banks of Korea between 2000:1 and 2011:2. We find that a higher sensitivity of banks' 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. This finding suggests that the regulation of banks’ WSF mechanism may contribute to financial stability through a bank credit channel of monetary policy. (The rest omitted)