Trade Uncertainty and U.S. Bank Lending

69 Pages Posted: 28 Sep 2022 Last revised: 1 Nov 2023

See all articles by Ricardo Correa

Ricardo Correa

Board of Governors of the Federal Reserve System

Julian di Giovanni

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

Linda S. Goldberg

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Camelia Minoiu

Federal Reserve Bank of Atlanta

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2023

Abstract

This paper uses U.S. loan-level credit register data and the 2018--2019 Trade War to test for the effects of international trade uncertainty on domestic credit supply. We exploit cross-sectional heterogeneity in banks' ex-ante exposure to trade uncertainty and find that an increase in trade uncertainty is associated with a contraction in bank lending to all firms irrespective of the uncertainty that the firms face. This baseline result holds for lending at the intensive and extensive margins. We document two channels underlying the estimated credit supply effect: a wait-and-see channel by which exposed banks assess their borrowers as riskier and reduce the maturity of their loans and a financial frictions channel by which exposed banks facing relatively higher balance sheet constraints contract lending more. The decline in credit supply has real effects: firms that borrow from more exposed banks experience lower debt growth and investment rates. These effects are stronger for firms that are more reliant on bank finance.

Keywords: Trade uncertainty, bank loans, trade finance, global value chains, trade war

JEL Classification: G21, F34, F42

Suggested Citation

Correa, Ricardo and di Giovanni, Julian and Goldberg, Linda S. and Minoiu, Camelia, Trade Uncertainty and U.S. Bank Lending (November 1, 2023). Available at SSRN: https://ssrn.com/abstract=4225203 or http://dx.doi.org/10.2139/ssrn.4225203

Ricardo Correa

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Julian Di Giovanni

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

HOME PAGE: http://julian.digiovanni.ca

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://julian.digiovanni.ca

Linda S. Goldberg

Federal Reserve Bank of New York ( email )

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New York, NY 10045
United States
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212-720-6831 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Camelia Minoiu (Contact Author)

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

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