The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The Outreach & Education function engages, empowers and educates the public in the Second District. Our outreach mission furthers the Bank’s commitment to the region by listening to the communities we serve and developing programs, analysis and sponsored conferences and clinics to help meet their needs. Our education mission aims to advance public knowledge about the Federal Reserve System and its role in the economy.
This study provides evidence that shocks to the supply of trade finance have a causal effect on U.S. exports. The identification strategy exploits variation in the importance of banks as providers of letters of credit across countries. The larger a U.S. bank’s share of the trade finance market in a country, the larger should be the effect on exports to that country if the bank changes its supply of letters of credit. We find that a shock of one standard deviation to a country’s supply of letters of credit increases export growth, on average, by 1.5 percentage points. The effect is larger for exports to small and poor destinations and more than doubles during times of financial distress. The results imply that banks affect firms’ export behavior and suggest that trade finance played a role in the Great Trade Collapse.