February 2026
Disruptions to Foreign Trade and U.S. Banks’ Returns
Michele Modugno, Dino Palazzo, Carlos A. Ramírez, and Thiago R.T. Ferreira
Abstract:
We develop a market-based measure of firms’ and industries’ exposure to foreign trade disruptions. Combining this approach with detailed supervisory data, we quantify large U.S. banks’ exposure to such disruptions and propose a novel bank-level vulnerability index. We show that banks with greater exposure experienced significantly larger stock price declines following the April 2025 tariff announcements. Our vulnerability index explains 18% of the cross-sectional variation in bank returns during this episode, underscoring the importance of trade-related risks for financial stability.
Keywords: Banks, Financial stability and risk, Trade
DOI: https://doi.org/10.17016/FEDS.2026.013
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Last Update:
February 27, 2026
