Robert Hills, Simon Lloyd, Rhiannon Sowerbutts, Dennis Reinhardt, Matthieu Bussière, Baptiste Meunier and Justine Pedrono
Large amounts of capital flow across borders. But these can be destabilising. So can recipient countries employ prudential policies to offset monetary policy changes in centre countries? And does it matter where sending banks are located? Our findings suggest it does. Our case study of French banks operating in London – part of a broader international initiative – suggests prudential policies have a much bigger offsetting effect on French banks’ lending out of the UK’s financial centre than on their lending out of headquarters in France. In line with those observations, we uncover evidence of a ‘London Bridge’ in cross-border lending: the way French banks channel funds to the UK is responsive to prudential policies in the rest of the world.
