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

R&R, Quarterly Journal of Economics
AQR Top Finance Graduate Award, BlackRock Applied Research Prize Finalist, Economic History Society New Researcher Prize, World Economic History Congress Poster Prize
Trade Talks Podcast, Telegraph UK, Economist, Hoover Interview

I study the first modern global banking crisis that began in London in 1866 and provide causal evidence that financial sector disruptions can reshape international trade patterns for decades. Using newly collected archival loan records that link banks to their operations abroad, I estimate that countries exposed to banks whose headquarters in London failed exported 17% less on average to each destination until 1905. Exporters trading with destinations for the first time, facing more competition in goods markets, and with little access to alternative forms of credit experienced more persistent losses, consistent with hysteresis arising from high sunk costs of entry into exporting.

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.

International Banks: Re-Agents of Globalization?

(with Wilfried Kisling & Chris Meissner)
Draft available upon request

We introduce novel data on the universe of multinational banking activity during the first age of globalization from 1870 1914 and show that these financial connections significantly increased trade volumes. First, we describe the data and show that the distribution of countries `exporting' banks is very skewed: the top four exporters are responsible for almost 80% of all multinational banks. Second, we show that there is a significant positive relationship between a multinational banking connection and exports using a standard gravity framework. We also employ a near-neighbors approach to disentangle the causal effect of bank entry from the possibility that banks simply anticipated exports growth.