Cross‐border bank flows through foreign branches and the effect of a macroprudential policy

Abstract

Global banks play an important role in the international transmission of shocks 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 how global banks propagate shocks and examines the effect of one particular macroprudential measure that was introduced to reduce the volatility of cross-border bank flows. I find that foreign bank branches actively adjust their borrowing from headquarters by responding to changes in interest rates and the covered interest parity deviations. An