Trade tensions reduce bank loan supply, dampen demand
Euro area banks have adjusted their lending policies in response to rising global trade tensions since 2025. An ECB blog post finds that banks increased monitoring and adopted a more cautious stance, leading to tighter credit conditions and dampened loan demand for firms.
Lending shifts under trade pressure
Global trade tensions, particularly broad-based US tariffs imposed in 2025, have prompted euro area banks to adjust their lending policies.
Banks have responded by stepping up monitoring of exposed borrowers and adopting a more cautious stance, especially those most heavily exposed to trade risks.
These adjustments have led to tighter lending conditions for firms and dampened their loan demand.
Data from the euro area bank lending survey (BLS) shows that a net 11 percent of banks reported stricter credit standards in 2025 due to trade policy changes and associated uncertainty.
Concurrently, a net 6 percent of banks reported a decrease in firms' loan demand in 2025, with this decline expected to continue into 2026.
The dampening impact on loan supply was most pronounced between April and October 2025, coinciding with the peak of US-EU trade disputes, before moderating as policy uncertainty eased.
Uneven exposure to US trade
Euro area banks' exposure to trade risk varies significantly across their loan portfolios, depending on corporate borrowers' reliance on US exports and imports.
The analysis measures this exposure by calculating the share of euro area value added consumed in the United States and the share of US value added embedded in euro area firms' output, then averaging these at the bank level.
Three key insights emerge: banks are more exposed to US export-related risks than import-related risks, export-related risks vary widely among banks, and a small number of banks face high risks from euro area exports to the United States.
About half of the banks participating in the euro area BLS in 2025 considered trade risks important, expecting similar levels in 2026.
Navigating a volatile landscape
This analysis clearly demonstrates how global trade policy directly translates into tangible shifts in credit conditions for euro area firms.
Banks, despite robust balance sheets, must regularly adjust lending practices to mitigate these external risks.
The findings underscore the critical need for continuous monitoring by both banks and supervisors in an uncertain economic environment.