By Claudia Buch, Linda S. Goldberg, Björn Imbierowicz
Recent geopolitical events have raised concerns that markets for goods and services could become more fragmented. Clearly, trade uncertainty has increased. The consequences for financial intermediation of fragmentation and uncertainty are not well understood though. If banks affected by adverse trade events contract lending, the effects of the initial shock for the real economy could be amplified. Studies conducted in the International Banking Research Network show that fragmentation shocks reallocate and sometimes reduce overall credit supply through banks. This reallocation can reinforce fragmentation and change the consequences from trade disruptions.