Cross-border regulatory spillovers: How much? How important? What sectors? Lessons from the United Kingdom

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 22 April 2016

Working Paper No. 595
By Robert Hills, Dennis Reinhardt, Rhiannon Sowerbutts and Tomasz Wieladek

This paper forms the United Kingdom’s contribution to the International Banking Research Network’s project examining the cross-border spillovers of prudential policy actions, where each participant in the network uses proprietary bank-level data available to central banks. We examine whether UK-owned banks’ domestic lending is affected by prudential actions in other countries where they have exposures. We also examine the impact of a change in prudential policy in a foreign-owned UK-resident bank’s home jurisdiction on its lending to the United Kingdom. Our results suggest that prudential actions taken abroad do not have significant spillover effects on bank lending in the UK economy as a whole. But there are more granular effects: for instance, when a foreign authority tightens loan-to-value standards, UK affiliates of banks owned from that country expand their lending to UK households and corporates.

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