Do Foreign Bank Operations Provide a Stabilizing Influence in Korea?

This paper examines Korean data (1994-2001) to determine if foreign banks behave differently than domestic banks and if that behavior provides a stabilizing influence on the Korean banking system and economy. Moreover, this paper also considers the effect, if any, of the Asian financial crisis on foreign and domestic bank behavior. Foreign banks. financial ratios differ from Korean banks with two notable exceptions: provisions for loan losses and loan growth. Before the Asian financial crisis, all banks. loans generally were unresponsive to Korean market conditions. Once the crisis began, foreign banks reduce total lending. Foreign banks increase and Korean banks decrease won-denominated loans when Korean GDP growth increases and when Korean interest rates increase. Finally, foreign banks. lending is sensitive to changes in home-country conditions.