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U.S. – China tensions and global bank lending

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  • Le, Duy Khanh

Abstract

This study provides the first empirical evidence of how U.S.–China tensions affect global bank lending. By integrating the bank lending channel with structural shifts in international trade and foreign direct investment (FDI), we analyze a panel of 127 countries from 2000 to 2020 using a two-step System GMM. Our analysis identifies a dual effect of geoeconomic fragmentation. On one hand, tensions stimulate credit growth in third-party countries as FDI inflows surge in response to global production realignments. On the other hand, fluctuations in international trade intensity exert a restraining effect on lending. This framework reveals a strategic banking response: while banks capitalize on increased investment flows, they remain cautious due to the systemic risks of supply chain disruptions and the displacement of legacy firms. These findings offer critical insights into how banking systems navigate geoeconomic fragmentation and underscore how trade flexibility allows countries to leverage shifts in global production.

Suggested Citation

  • Le, Duy Khanh, 2026. "U.S. – China tensions and global bank lending," Finance Research Letters, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:finlet:v:102:y:2026:i:c:s1544612326006215
    DOI: 10.1016/j.frl.2026.110092
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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