Discussion paper
DP18631 Trade Uncertainty and U.S. Bank Lending
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 behavior,” 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.
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