The Performance of Domestic and Foreign Banks: The Case of Korea and the Asian Financial Crisis

This paper considers the performance of banks, domestic and foreign, in Korea prior to, during, and immediately after the Asian financial crisis, examining how the profitability of those banks differed and identifying factors that explain why those differences existed. The performance of Korean banks deteriorated dramatically in 1998 with most banks recovering somewhat in 1999. Foreign banks did not experience the same negative effect on their returns on assets and equity as a rule. Several standard findings emerge. For example, equity to assets correlates positively with domestic, but not foreign, bank performance, as measured by the returns on assets and equity, even when the government recapitalized institutions that were performing quite badly. Also, foreign-currency deposits significantly and negatively correlate with domestic Korean bank performance, although only in the post-crisis period for regional banks. In sum, the domestic Korean banks suffered more severely from the Asian financial crisis than foreign banks.

Dynamic Effects of Currency Depreciation on Stock Market Returns during the Asian Financial Crisis

The current international integration of financial markets provides a channel for currency depreciation to affect stock prices. Moreover, the recent financial crisis in Asia with its accompanying exchange rate volatility affords a case study to examine that channel. This paper applies a bivariate GARCH-M model of the reduced form of stock market returns to investigate empirically the effects of daily currency depreciation on stock market returns for five newly emerging East Asian stock markets during the Asian financial crisis. The evidence shows that the conditional variances of stock market returns and depreciation rates exhibit time-varying characteristics for all countries. Domestic currency depreciation and its uncertainty adversely affects stock market returns across countries. The significant effects of foreign exchange market events on stock market returns suggest that international fund managers who invest in the newly emerging East Asian stock markets must evaluate the value and stability of the domestic currency as a part of their stock market investment decisions.

Foreign and Domestic Bank Performances: An Ideal Decomposition of Industry Dynamics

The aggregate performance of the banking industry depends on the underlying microlevel dynamics within that industry. adjustments within banks, reallocations between banks, entries of new banks, and exits of existing banks. This paper develops a generalized ideal dynamic decomposition and applies it to the return on equity of foreign and domestic commercial banks in Korea from 1994 to 2000. The sample corresponds to the Asian financial crisis and the final stages of a long process of deregulation and privatization in the Korean banking industry. The comparison of our findings reveals that the overall performance of Korean banks largely reflects individual bank efficiencies, except immediately after the Asian financial crisis where restructuring played a more important role on average bank performance. Moreover, Korean regional banks started the restructuring process about one year before the Korean nationwide banks. Foreign bank performance, however, largely reflected individual bank efficiencies, even immediately after the Asian financial crisis.

Exchange Market Pressure on the Pound-Dollar Exchange Rate: 1925-1931

An investigation of exchange market pressure against the pound sterling during the inter-war period. The main findings are that a) the behavior of UK fundamentals relative to those of the USA help to explain exchange market pressure against the pound; b) during the run up to devaluation in September 1931 the monetary authorities in the UK were acting to reduce domestic credit; but that c) additional pressure was brought against the pound from speculative sources. These findings relate to current thinking on the choice of exchange rate regime as even well behaved fundamentals may not be sufficient to sustain a currency on its peg.

Perpetual Conflict or Compromise? The Cost of Domestic Legitimacy in the Realm of Women's Human Rights: A Case Study on the Right to an Abortion

With its turbulent and volatile legal evolution, the right to an abortion in the United States still remains a highly contested issue and has developed into one of the most divisive topics within modern legal discourse. By deconstructing the political underpinnings and legal rationale of the right to an abortion through a systematic case law analysis, I will demonstrate that this right has been incrementally destabilized. This instability embedded in abortion jurisprudence has been primarily produced by a combination of textual ambiguity in the case law and judicial ambivalence regarding this complex area of law. In addition, I argue that the use of the largely discredited substantive due process doctrine to ground this contentious right has also contributed to the lack of legal stability. I assert that when these elements culminate in the realm of reproductive privacy the right to terminate a pregnancy becomes increasingly unstable and contested.

Interbank Markets under Currency Boards

This paper analyzes interbank markets under currency boards. Under such an environment, problematic endogeneity issues common to other monetary regimes do not arise. Using daily data from the interbank markets in Bulgaria and Lithuania we show, that contrary to the existing literature, overnight interest rates tend to decrease towards the end of the reserve holding period. Empirical results are supported by a finite horizon heterogeneous agents model showing that interest rates tend to decrease in the case of excess aggregate reserves in the banking system. Results contrast with Quir'os and Mendiz'abal (2006) who find that interest rates should be increasing regardless of the outstanding aggregate liquidity in the market. We also show that responsiveness of banks to interest rate changes diminishes as the end of reserve holding period approaches. Under certain circumstances this could lead to multiple equilibria with increasing or decreasing interest rates.

Monetary Policy Under a Currency Board

The consensus view is that central banks under currency boards do not have tools for active monetary policy. In this paper, we analyze the foreign exchange fee as a monetary policy instrument that can be used by a central bank under a currency board. We develop a general equilibrium model showing that changes in this fee may have the same effects as a change in the monetary policy stance. Thus central banks under the currency board are shown to have an avenue to implement active monetary policy.