Tracking Foreign Capital: The Effect of Capital Inflows on Bank Lending in the UK

Christiane Kneer () and Alexander Raabe ()
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Christiane Kneer: Bank of England
Alexander Raabe: Asian Development Bank

IMF Economic Review, 2024, vol. 72, issue 4, No 1, 1279-1319

Abstract: Abstract This paper examines how UK banks channel foreign capital to the individual sectors of the domestic economy and to overseas residents. Information about the source countries of foreign funds deposited with UK banks allows us to construct a novel Bartik instrument for capital flows. Our results suggest that foreign inflows boost bank lending to the domestic economy. This is driven by the positive effect of foreign inflows on bank lending to non-financial firms and to other domestic financial institutions. We find that banks do not channel capital inflows to households or the public sector. Much of the foreign capital is also channeled back abroad, reflecting the role of the UK as a global financial center.

JEL-codes: F21 F30 F32 F34 G00 G21 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1057/s41308-023-00215-w

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