Financial services trade restrictions and lending from an international financial centre

Simon Lloyd, Dennis Reinhardt and Rhiannon Sowerbutts ()
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Rhiannon Sowerbutts: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 1022, Bank of England working papers from Bank of England

Abstract: This paper examines how international lending of UK-based banks is affected by services trade restrictions on commercial banks applied abroad. Exploiting heterogeneity in banks’ cross-border activities, we find evidence that banks without a local affiliate presence abroad cut back their non-bank lending to countries applying restrictions, and vice versa when restrictions are liberalised. On the other hand, banks with a local presence reduce their intragroup loans, but substitute for this by increasing direct cross-border lending to non-banks. These findings suggest that increasing services trade restrictiveness may lead global banks to reshape their business model for cross-border lending. Services trade restrictions that act on the intensive margin of lending, such as barriers to competition, appear to be the primary drivers of this substitution from ‘local’ to ‘global’ financial intermediation.

Keywords: Services trade restrictions; commercial banking restrictions; cross-border bank lending; banks’ business models (search for similar items in EconPapers)
JEL-codes: F13 F34 F42 G18 G21 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2023-04-21
New Economics Papers: this item is included in nep-fdg and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1022

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