Does Trade Uncertainty Affect Bank Lending?

Ricardo Correa, Julian di Giovanni, Linda Goldberg and Camelia Minoiu

No 20231220, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: The recent era of global trade expansion is over. Faced with increased geopolitical risk, fragile foreign supply chains, and uncertainties in the international trade environment, firms are postponing entry into foreign markets and pulling back from foreign activities (IMF 2023). Besides its direct effects on real activity, the recent rise in trade uncertainty has potentially important implications for the financial sector. This post describes how the lending activities of U.S. banks were affected by the rise in trade uncertainty during the 2018-19 “trade war.” In particular, banks that were more exposed to trade uncertainty contracted lending to all of their domestic nonfinancial business borrowers, regardless of whether these borrowers were facing high or low uncertainty themselves. Furthermore, banks’ lending strategies exhibited the type of “wait-and-see” behavior usually found in corporate firms facing investment decisions under uncertainty, and the lending contraction was larger for those banks that were more financially constrained.

Keywords: bank loans; trade finance; trade uncertainty (search for similar items in EconPapers)
JEL-codes: F34 F42 G21 (search for similar items in EconPapers)
Date: 2023-12-20
New Economics Papers: this item is included in nep-ban, nep-ifn and nep-int
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