Authorities fear instability from foreign lenders

 
Tim Wallace
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THE UK plays host to a larger number of foreign bank branches than any other developed economy, leading to more volatility from international money flows in times of crisis and requiring greater regulatory oversight, a Bank of England paper has claimed.

Foreign branches increased lending to most sectors of the economy more quickly than their domestic counterparts in the boom years and also withdrew lending more quickly in the crash. Combined with a greater reliance than most domestic lenders on wholesale markets, that means they need extra attention from the authorities, according to the report.

“Foreign branches can also contribute to the UK economy. They can increase competition in the domestic financial market and may increase the efficiency of domestic banks through transferring technological and managerial know how,” said the report.

But it also found lenders were likely to withdraw from the UK rapidly, in part to send resources back to parent groups in home markets.