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Tracking foreign capital: the effect of capital inflows on bank lending in the UK


Kneer, Christiane; Raabe, Alexander (2019). Tracking foreign capital: the effect of capital inflows on bank lending in the UK. Working paper series / Department of Economics 256, University of Zurich.

Abstract

This paper examines how UK banks channel capital inflows to the individual sectors of the domestic economy and to overseas residents. Information on the source country of foreign capital deposited with UK banks allows us to construct a novel Bartik instrument for capital inflows. Our results suggest that foreign funds boost bank lending to the domestic economy. This result is due to the positive effect of capital inflows on bank lending to non-financial firms and to other domestic financial institutions. Banks do not channel capital inflows directly 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.

Abstract

This paper examines how UK banks channel capital inflows to the individual sectors of the domestic economy and to overseas residents. Information on the source country of foreign capital deposited with UK banks allows us to construct a novel Bartik instrument for capital inflows. Our results suggest that foreign funds boost bank lending to the domestic economy. This result is due to the positive effect of capital inflows on bank lending to non-financial firms and to other domestic financial institutions. Banks do not channel capital inflows directly 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.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:F21, F30, F32, F34, G00, G21
Uncontrolled Keywords:Capital flows, bank lending, credit allocation, international finance, instrumental variables, international financial linkages
Language:English
Date:July 2019
Deposited On:03 Jul 2019 09:43
Last Modified:25 Sep 2019 00:37
Series Name:Working paper series / Department of Economics
Number of Pages:39
ISSN:1664-7041
OA Status:Green
Official URL:https://www.econ.uzh.ch/static/release/workingpapers.php?id=1005

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