Reshaping Global Trade: the Immediate and Long-Term Effects of Bank Failures

AQR Top Finance Graduate Award, BlackRock Applied Research Prize Finalist, Economic History Society New Researcher Prize, World Economic History Congress Poster Prize

I study the most severe banking crisis in British history (1866) to provide causal evidence that financial sector shocks can have long-lasting impact on the patterns of international trade. Banks' headquarter failures in London led to subsidiary closures in cities and countries around the world. Using archival loan records, I estimate that port cities with 10pp exposure to failed banks had 5.6 percent less exports the following year. In the long-run, more exposed countries exported significantly less to their trade partners for four decades. Exporters with more exports competition and those with little access to alternative forms of credit experienced more persistent effects. Overall, more exposed countries had 1.6 percent lower annual total export growth from 1866--1914.
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National Banks and the Local Economy

(with He Yang)
WFA Cubist Systematic Strategies PhD Candidate Award for Outstanding Research

We use a historical laboratory to show that banks impact real economic activity through the liabilities side of their balance sheet, where safer liabilities provide better monetary services. The United States National Banking Act of 1864 was enacted when the circulating money supply primarily consisted of privately issued bank notes. The Act required “national banks” to fully back their bank note liabilities with federal bonds, thereby creating a new and stable currency, which reduced transactions costs and facilitated trade. National banks also faced regulatory capital requirements defined by town population cutoffs. Using the discontinuity in the capital requirement as an instrument for national bank entry, we find that the composition of agricultural production shifted from non-traded crops to traded crops while total production was unaffected. Moreover, trade activity proxied by employment in trade-related professions and businesses engaged in trade grew. National banks also led to significant manufacturing output growth that was primarily driven by sourcing more inputs. Furthermore, the higher levels of manufacturing output persisted for two decades.
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