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Flooded Through the Back Door: Firm-Level Effects of Banks' Lending Shifts

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  • Oliver Rehbein

Abstract

I show that natural disasters transmit to firms in non-disaster areas via their banks. This spillover of non-financial shocks through the banking system is stronger for banks with less regulatory capital. Firms connected to a disaster-exposed bank with below median capital, reduce their employment by 11\% and their fixed assets by 20\% compared to firms in the same region without such a bank during the 2013 flooding in Germany. Low bank capital thus carries a negative externality because it amplifies regional shock spillovers. I show that bank liquidity, and firm capital and liquidity are less relevant to prevent shock transmission.

Suggested Citation

  • Oliver Rehbein, 2018. "Flooded Through the Back Door: Firm-Level Effects of Banks' Lending Shifts," CRC TR 224 Discussion Paper Series crctr224_2018_043v1, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2018_043v1
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp043
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    Cited by:

    1. Brei, Michael & Mohan, Preeya & Strobl, Eric, 2019. "The impact of natural disasters on the banking sector: Evidence from hurricane strikes in the Caribbean," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 232-239.
    2. Brei, Michael & Mohan, Preeya & Perez Barahona, Agustin & Strobl, Eric, 2024. "Transmission of natural disasters to the banking sector: Evidence from thirty years of tropical storms in the Caribbean," Journal of International Money and Finance, Elsevier, vol. 141(C).
    3. Tetsuji Okazaki & Toshihiro Okubo & Eric Strobl, 2020. "The Bright and Dark Side of Financial Support from Local and Central Banks after a Natural Disaster: Evidence from the Great Kanto Earthquake, 1923 Japan," Keio-IES Discussion Paper Series 2020-001, Institute for Economics Studies, Keio University.

    More about this item

    Keywords

    natural disaster; real effects; shock transmission; bank capital;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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