Finance and Economics Discussion Series (FEDS)
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.
On February 27, 2026, the FEDS Paper was updated to correct misnumbered footnotes, remove an extraneous sentence from the abstract, add missing citations, and revise the conclusion.
Keywords: Banks, Financial stability and risk, Trade
DOI: https://doi.org/10.17016/FEDS.2026.013
PDF: Full Paper
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