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Financial fragility and natural disasters: An empirical analysis

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  • Klomp, Jeroen

Abstract

Using data for more than 160 countries in the period 1997–2010, we explore the impact of large-scale natural disasters on the distance-to-default of commercial banks. The financial consequences of natural catastrophes may stress and threaten the existence of a bank by adversely affecting their solvency. After extensive testing for the sensitivity of the results, our main findings suggest that natural disasters increase the likelihood of a banks’ default. More precisely, we conclude that geophysical and meteorological disasters reduce the distance-to-default the most due to their widespread damage caused. In addition, the impact of a natural disaster depends on the size and scope of the catastrophe, the rigorousness of financial regulation and supervision, and the level of financial and economic development of a particular country.

Suggested Citation

  • Klomp, Jeroen, 2014. "Financial fragility and natural disasters: An empirical analysis," Journal of Financial Stability, Elsevier, vol. 13(C), pages 180-192.
    • Handle: RePEc:eee:finsta:v:13:y:2014:i:c:p:180-192
    DOI: 10.1016/j.jfs.2014.06.001
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    More about this item

    Keywords

    Banking sector; Financial fragility; Natural disasters;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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