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Natural catastrophes and bank lending: the case of flood risk in Italy

Author

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  • Ivan Faiella

    (Bank of Italy)

  • Filippo Natoli

    (Bank of Italy)

Abstract

We investigate the relationship between bank lending and catastrophe risk by analyzing the exposure of banks to Italian firms located in areas at risk of flooding. By matching a new map of flood risk areas with proprietary data on bank loans at municipal level we find that, on controlling for sectoral- and province-level fixed effects, lending to non-financial firms is negatively correlated with their flood risk exposure. A province-level analysis, which also allows us to control for bank- and firm-specific factors, confirms this finding when the borrowers are small and medium-sized enterprises. This investigation gives an initial insight into the relationship between the risk of natural catastrophes - exacerbated by climate change - and lending decisions.

Suggested Citation

  • Ivan Faiella & Filippo Natoli, 2018. "Natural catastrophes and bank lending: the case of flood risk in Italy," Questioni di Economia e Finanza (Occasional Papers) 457, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_457_18
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    Cited by:

    1. Ivan Faiella & Danila Malvolti, 2020. "The climate risk for the finance in Italy," Questioni di Economia e Finanza (Occasional Papers) 545, Bank of Italy, Economic Research and International Relations Area.
    2. Wolfgang Pointner & Doris Ritzberger-Grünwald, 2019. "Climate change as a risk to financial stability," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 38, pages 30-45.
    3. Justin Contat & Carrie Hopkins & Luis Mejia & Matthew Suandi, 2024. "When climate meets real estate: A survey of the literature," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 52(3), pages 618-659, May.
    4. Chiara Lodi & Giovanni Marin & Marco Modica, 2022. "Fiscal policy response of local governments to floods in Italy," Working Papers 2022.34, Fondazione Eni Enrico Mattei.
    5. Ivan Faiella & Luciano Lavecchia, 2020. "The carbon footprint of Italian loans," Questioni di Economia e Finanza (Occasional Papers) 557, Bank of Italy, Economic Research and International Relations Area.
    6. Shouwei Li & Xin Wu, 2023. "How does climate risk affect bank loan supply? Empirical evidence from China," Economic Change and Restructuring, Springer, vol. 56(4), pages 2169-2204, August.
    7. Shala, Iliriana & Schumacher, Benno, 2022. "The impact of natural disasters on banks' impairment flow: Evidence from Germany," Discussion Papers 36/2022, Deutsche Bundesbank.
    8. Maria Sole Pagliari, 2023. "LSIs’ Exposures to Climate-Change-Related Risks: An Approach to Assess Physical Risks," International Journal of Central Banking, International Journal of Central Banking, vol. 19(1), pages 1-54, March.
    9. Michele Loberto & Matteo Spuri, 2023. "The impact of flood risk on real estate wealth in Italy," Questioni di Economia e Finanza (Occasional Papers) 768, Bank of Italy, Economic Research and International Relations Area.
    10. Alogoskoufis, Spyros & Dunz, Nepomuk & Emambakhsh, Tina & Hennig, Tristan & Kaijser, Michiel & Kouratzoglou, Charalampos & Muñoz, Manuel A. & Parisi, Laura & Salleo, Carmelo, 2021. "ECB’s economy-wide climate stress test," Occasional Paper Series 281, European Central Bank.
    11. Pauline AVRIL & Grégory LEVIEUGE & Camélia TURCU, 2021. "Natural Disasters and Financial Stress: Can Macroprudential Regulation Tame Green Swans?," LEO Working Papers / DR LEO 2913, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    12. Drudi, Francesco & Moench, Emanuel & Holthausen, Cornelia & Weber, Pierre-François & Ferrucci, Gianluigi & Setzer, Ralph & Adao, Bernardino & Dées, Stéphane & Alogoskoufis, Spyros & Téllez, Mar Delgad, 2021. "Climate change and monetary policy in the euro area," Occasional Paper Series 271, European Central Bank.
    13. Enrico Bernardini & Ivan Faiella & Luciano Lavecchia & Alessandro Mistretta & Filippo Natoli, 2021. "Central banks, climate risks and sustainable finance," Questioni di Economia e Finanza (Occasional Papers) 608, Bank of Italy, Economic Research and International Relations Area.
    14. Calice,Pietro & Miguel Liriano,Faruk, 2021. "Climate-Related and Environmental Risks for the Banking Sector in Latin America and the Caribbean : A Preliminary Assessment," Policy Research Working Paper Series 9694, The World Bank.
    15. Giuliana Birindelli & Graziella Bonanno & Stefano Dell'Atti & Antonia Patrizia Iannuzzi, 2022. "Climate change commitment, credit risk and the country's environmental performance: Empirical evidence from a sample of international banks," Business Strategy and the Environment, Wiley Blackwell, vol. 31(4), pages 1641-1655, May.
    16. Vera Palea & Federico Drogo, 2020. "Carbon emissions and the cost of debt in the eurozone: The role of public policies, climate‐related disclosure and corporate governance," Business Strategy and the Environment, Wiley Blackwell, vol. 29(8), pages 2953-2972, December.
    17. Pauline Avril & Gregory Levieuge & Camelia Turcu, 2023. "Do bankers want their umbrellas back when it rains? Evidence from typhoons in China," Working Papers 2023.08, International Network for Economic Research - INFER.
    18. Stefano Battiston & Martin Guth & Irene Monasterolo & Benjamin Neudorfer & Wolfgang Pointner, 2020. "Austrian banks’ exposure to climate-related transition risk," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 40, pages 31-44.
    19. Simona Cosma & Paola Schwizer & Lorenzo Nobile & Rossella Leopizzi, 2021. "Environmental attitude in the board. Who are the “green directors”? Evidences from Italy," Business Strategy and the Environment, Wiley Blackwell, vol. 30(7), pages 3360-3375, November.

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    More about this item

    Keywords

    catastrophe risk; climate change; rare disasters; bank lending; flooding; Italy;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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