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International Liquidity Shock and Bank Resilience: Evidence from Matched Bank-Firm Data

Author

Listed:
  • Youngju Kim

    (Bank of Korea)

  • Hyunjoon Lim

    (Bank of Korea)

  • Youngjin Yun

    (Inha University)

Abstract

Banks are the first line of defense against the propagation of adverse external shocks. This study examines the role of banks in the transmission of international liquidity shock using matched bank-firm data for Korea over the 2006-2015 period. We measure individual banks’ sensitivity to international shocks by analyzing their foreign exchange (FX) borrowing rates. The bank from which a firm borrows matters in times of FX liquidity shocks. We find that sensitive banks reduce FX credit supply to firms and that FX loan-reliant, highly productive firms subsequently reduce their investment. Foreign banks are affected less by the shocks, but they reduce credit supply more than domestic banks. Our findings emphasize the importance of bank resilience vis-à -vis external and domestic stability.

Suggested Citation

  • Youngju Kim & Hyunjoon Lim & Youngjin Yun, 2022. "International Liquidity Shock and Bank Resilience: Evidence from Matched Bank-Firm Data," Inha University IBER Working Paper Series 2022-2, Inha University, Institute of Business and Economic Research.
    • Handle: RePEc:inh:wpaper:2022-2
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    More about this item

    Keywords

    international liquidity shock; FX loan; credit register; real effect;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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