The Bank of England published Staff Working Paper No. 1,179 assessing whether a domestically headquartered banking sector that lends more abroad is linked to higher productivity in the home economy. Using both European cross-country/cross-sector analysis and UK bank–firm evidence, the paper reports a positive association between domestic banks’ foreign lending and domestic productivity growth, while lending inflows from foreign banks are not associated with productivity improvements. In a European panel (1999–2019), a 1% increase in foreign lending by domestic banks is associated with a 0.6–0.7 percentage point rise in the annual growth rate of productivity (real revenues per employee), with local projection estimates suggesting the effect accumulates over time. UK micro evidence (2018–2024), combining confidential Prudential Regulation Authority bank data with firm balance sheets, finds productivity growth is higher for firms connected to banks with a larger share of lending to non-UK G7 corporates; the effect is not limited to exporting firms and is slightly stronger early in new bank–firm relationships. As a staff working paper, the research is published to elicit comments and does not represent Bank of England policy or the views of its committees.
Bank of England 2026-04-10
Bank of England staff working paper finds domestic banks’ cross-border lending associated with 0.6–0.7 percentage point higher annual productivity growth
The Bank of England published Staff Working Paper No. 1,179 examining whether greater foreign lending by domestically headquartered banks is associated with higher home-economy productivity. Using European panel data and UK bank–firm micro evidence, the paper finds a positive link between domestic banks’ foreign lending and domestic productivity growth, while foreign banks’ lending into the domestic economy shows no such association. The authors note the paper is research for comment and does not represent Bank of England policy or committee views.