British banks flee France

FEARFUL UK banks have pulled tens of billions of pounds out of the struggling French economy in the face of a looming credit rating downgrade.

France is clinging to its gilt-edged status by the slenderest of threads as financial market worries grow over the exposure of its fragile banking system to Europe's sovereign rows. Many economists predict a downgrade of its prized AAA credit rating within days.

Bank of England statistics released yesterday showed Britain's banks slashing their exposure to French public debt by $AUD29.3 billion between July and September.

The exodus from France accounted for almost half the $AUD62.4 billion British banks shaved from their financial exposure to the rest of the world in the third quarter, when Europe's sovereign debt crisis entered a dangerous new phase.

UK banks also pulled a combined $AUD20 billion out of Spain and Italy and instead sought the safety of ultra-safe German bunds, piling some $AUD40.3 billion into Germany and $AUD21.1 billion into the Netherlands.

US Treasuries were also in demand despite ratings agency Standard & Poor's stripping the US of its triple-A rating for the first time in August. 

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