Tuesday, 9 September 2008

Foreigners pull their cash out of UK banks

It is amazing how the main stream media miss the really big financial stories.

Last week, the BoE published data on the external liabilities of UK banks. At the risk of over-simplifying things, this number measures bank deposits of foreigners held here in the UK. What did this number show? Foreigners are pulling out their cash.

UK based banks hold huge amounts of external liabilities. In March 2008, the number peaked at almost ₤8 trillion. That is about 5 times UK GDP. However, between March and June, external liabilities fell by ₤740 billion. That represents about a 9 percent fall. As the chart above illustrates, this is not something that has happened recently.

As external liabilities were falling, UK banks were reducing their assets. In other words, they were selling off their positions in order to finance their withdrawals.

Here is a question - why do you think foreigners are pulling their cash out of the UK?

5 comments:

vado said...

Five times GDP????

We are ruined.

MAB said...

Alice,

De-leveraging is a rolling process that cycles over and over from asset class to asset class and from country to country.

Also, price fixing never works. Including the U.S. treasury's vain attempts to put a floor under house prices.

mike said...

Yet more evidence that sterling's future is not bright. Lets hope the assets that the banks hold are well valued otherwise there will be more write-offs due to this.

In fact I would go as far as saying this could trigger our own credit crunch. If some unfortunate banks have to finance these withdrawals with cash assets then the amount available for mortgages must surely dry up. This would make worse a market that is already lacking in cash. I would expect mortgage rates to go sky high if this is the case.

Rebecca Wilder said...

I was just looking at this today with the US. Private investors have pulled out roughly $4.75 trillion from U.S. assets (as of June 2008 on a 12-month rolling basis). But at the same time, the U.S. has likewise increased its holdings abroad by $139 billion. You know how these credit crunch things work - capital flows just diverge away from our black-listed economies.

Rebecca Wilder said...

Hi Alica,
I apologize, my numbers are wrong. According to the U.S. Treasury TIC data, foreigners have pulled out $492 billion, and U.S. holdings of foreign has increased $40 billion since this time last year. The most current data is June 2008. Sorry for the inconvenience.
Rebecca