Trade Uncertainty and U.S. Bank Lending

Abstract

This paper uses U.S. credit register data and the 2018--2019 Trade War to study the effects of uncertainty on domestic credit supply. Exploiting differences in banks' ex-ante exposure to trade uncertainty, we find that increased uncertainty is associated with a broad lending contraction across their customer firms. This result is consistent with banks responding to uncertainty with wait-and-see behaviors, where more exposed banks curtail risky exposures, reduce loan maturities, and adjust loan supply along both intensive and extensive margins. The lending contraction is larger for more capital-constrained banks and has significant real effects, especially for bank-dependent firms.

Keywords: uncertainty, bank loans, trade finance, credit supply, trade war

JEL Classification: G21, F34, F42