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Trade conflicts and credit supply spillovers : Evidence from the Nobel Peace Prize trade shock

Author

Listed:
  • Jin Cao
  • Valeriya Dinger
  • Ragnar E. Juelsrud
  • Karolis Liaudinskas

Abstract

In this paper, we examine how a trade conflict’s impact on the real economy can be amplified by financial intermediaries. After China’s implicit ban on the imports of Norwegian salmon in response to the decision on 2010 Nobel Peace Prize, we find that banks that are highly exposed to the salmon industry cut back lending to non-salmon firms and households by 3-6 percent more than other banks. Furthermore, we find that the reduction in lending was not driven by the erosion of bank capital, but rather by the shift in expectations about the performance of loans to salmon producers, which drove highly exposed banks to increase their loan loss provisions and reduce risk-taking.

Suggested Citation

  • Jin Cao & Valeriya Dinger & Ragnar E. Juelsrud & Karolis Liaudinskas, 2023. "Trade conflicts and credit supply spillovers : Evidence from the Nobel Peace Prize trade shock," Working Paper 2023/6, Norges Bank.
    • Handle: RePEc:bno:worpap:2023_6
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    File URL: https://hdl.handle.net/11250/3073366
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    1. Ricardo Correa & Julian di Giovanni & Linda S. Goldberg & Camelia Minoiu, 2023. "Trade Uncertainty and U.S. Bank Lending," International Finance Discussion Papers 1383, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    Trade shock; Bank lending channel; Expectation shock.;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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