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Banks in international trade finance: evidence from the U.S

Author

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  • Friederike Niepmann
  • Tim Schmidt-Eisenlohr

Abstract

Banks play a critical role in facilitating international trade, in particular by reducing the risk of trade transactions. This paper uses unique information on the trade finance business of U.S. banks to document new empirical patterns. The data reveal that banks' trade finance claims differ substantially across destination countries. They are hump-shaped in country credit risk and increase with the time to import of a destination market. The extent to which trading partners use bank guarantees also varies systematically with global conditions, expanding when aggregate risk is higher and funding is cheaper. The response of bank trade finance to changes in these macro factors is heterogeneous, however. In countries with intermediate levels of credit risk, which rely the most on bank guarantees, bank trade finance adjusts the least. We show that a modification of the standard model of payment contract choice in international trade is needed to rationalize these empirical findings.

Suggested Citation

  • Friederike Niepmann & Tim Schmidt-Eisenlohr, 2013. "Banks in international trade finance: evidence from the U.S," Staff Reports 633, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:633
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    References listed on IDEAS

    as
    1. David L. Hummels & Georg Schaur, 2013. "Time as a Trade Barrier," American Economic Review, American Economic Association, vol. 103(7), pages 2935-2959, December.
    2. JaeBin Ahn, 2011. "A Theory of Domestic and International Trade Finance," IMF Working Papers 11/262, International Monetary Fund.
    3. Niepmann, Friederike, 2015. "Banking across borders," Journal of International Economics, Elsevier, vol. 96(2), pages 244-265.
    4. Silvia Del Prete & Stefano Federico, 2014. "Trade and finance: is there more than just 'trade finance'? Evidence from matched bank-firm data," Temi di discussione (Economic working papers) 948, Bank of Italy, Economic Research and International Relations Area.
    5. Felici Roberto & Pagnini Marcello, 2005. "Distance, bank heterogeneity and entry in local banking markets," Temi di discussione (Economic working papers) 557, Bank of Italy, Economic Research and International Relations Area.
    6. Andreas Hoefele & Tim Schmidt-Eisenlohr & Zhihong Yu, 2016. "Payment choice in international trade: Theory and evidence from cross-country firm-level data," Canadian Journal of Economics, Canadian Economics Association, vol. 49(1), pages 296-319, February.
    7. Thomas William Dorsey & Mika Saito & Armine Khachatryan & Irena Asmundson & Ioana Niculcea, 2011. "Trade and Trade Finance in the 2008-09 Financial Crisis," IMF Working Papers 11/16, International Monetary Fund.
    8. Daniel Paravisini & Veronica Rappoport & Philipp Schnabl & Daniel Wolfenzon, 2015. "Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 333-359.
    9. Beck, Thorsten, 2002. "Financial development and international trade: Is there a link?," Journal of International Economics, Elsevier, vol. 57(1), pages 107-131, June.
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    Cited by:

    1. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2017. "No guarantees, no trade: How banks affect export patterns," Journal of International Economics, Elsevier, vol. 108(C), pages 338-350.
    2. Hale, Galina & Candelaria, Christopher & Caballero, Julian & Borisov, Sergey, 2013. "Bank Linkages and International Trade," Working Paper Series 2013-14, Federal Reserve Bank of San Francisco, revised 11 Feb 2016.
    3. Daniel Paravisini & Veronica Rappoport & Philipp Schnabl, 2015. "Specialization in Bank Lending: Evidence from Exporting Firms," NBER Working Papers 21800, National Bureau of Economic Research, Inc.
    4. José María Serena Garralda & Garima Vasishtha, 2015. "What drives bank-intermediated trade finance? Evidence from cross-country analysis," Working Papers 1524, Banco de España;Working Papers Homepage.
    5. Veronica Rappoport & Philipp Schnabl & Daniel Paravisini, 2015. "Comparative Advantage and Specialization in Bank Lending," 2015 Meeting Papers 499, Society for Economic Dynamics.
    6. Bank for International Settlements, 2014. "Trade finance: developments and issues," CGFS Papers, Bank for International Settlements, number 50.

    More about this item

    Keywords

    International trade ; Banks and banking; International ; Risk ; Credit;

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