Financial institutions and synchronization in an emerging market: New evidence from the Korean savings bank crisis

초록

The recent savings bank crisis in Korea brought to light the issue of the development of financial institutions in an emerging market. We analyze the likelihood of financial synchronization within savings bank groups, using datasets from eight savings bank groups from 2000 to 2012 in Korea and investigate the linkages between synchronization and insolvency risk within financial institutions. The results of a Granger causality test and Vector Autoregression (VAR) model show that savings bank groups do exhibit Granger causality with their financial indicators. For most of the groups, the financial indicators of parent companies are shown to affect those of subsidiaries, thus increase the insolvency risk of those groups, and financial indicators with Granger causality varied from group to group. The savings banking groups that witness synchronization in two or more indices using VAR test became insolvent due to deterioration in their financial soundness after 2011 and were eventually dissolved. These results suggest that the level of synchronization for the indices is deemed to indicate to some degree the potential business risk of given savings banks.