IDEAS home Printed from https://ideas.repec.org/p/fip/fednsr/93339.html
   My bibliography  Save this paper

How Bad Are Weather Disasters for Banks?

Author

Abstract

Not very. We find that weather disasters over the last quarter century had insignificant or small effects on U.S. banks’ performance. This stability seems endogenous rather than a mere reflection of federal aid. Disasters increase loan demand, which offsets losses and actually boosts profits at larger banks. Local banks tend to avoid mortgage lending where floods are more common than official flood maps would predict, suggesting that local knowledge may also mitigate disaster impacts.

Suggested Citation

  • Kristian S. Blickle & Sarah Ngo Hamerling & Donald P. Morgan, 2021. "How Bad Are Weather Disasters for Banks?," Staff Reports 990, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:93339
    Note: Revised January 2022.
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr990.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://www.newyorkfed.org/research/staff_reports/sr990.html
    File Function: Summary
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Brigitte Roth Tran & Daniel J. Wilson, 2020. "The Local Economic Impact of Natural Disasters," Working Paper Series 2020-34, Federal Reserve Bank of San Francisco.
    2. Cortés, Kristle Romero & Strahan, Philip E., 2017. "Tracing out capital flows: How financially integrated banks respond to natural disasters," Journal of Financial Economics, Elsevier, vol. 125(1), pages 182-199.
    3. Robert F Engle & Stefano Giglio & Bryan Kelly & Heebum Lee & Johannes Stroebel, 2020. "Hedging Climate Change News," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1184-1216.
    4. Russell Sobel & Peter Leeson, 2006. "Government's response to Hurricane Katrina: A public choice analysis," Public Choice, Springer, vol. 127(1), pages 55-73, April.
    5. Klomp, Jeroen, 2014. "Financial fragility and natural disasters: An empirical analysis," Journal of Financial Stability, Elsevier, vol. 13(C), pages 180-192.
    6. Eric Strobl, 2011. "The Economic Growth Impact of Hurricanes: Evidence from U.S. Coastal Counties," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 575-589, May.
    7. Koetter, Michael & Noth, Felix & Rehbein, Oliver, 2020. "Borrowers under water! Rare disasters, regional banks, and recovery lending," Journal of Financial Intermediation, Elsevier, vol. 43(C).
    8. 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.
    9. Nicholas Z. Muller & Caroline A. Hopkins, 2019. "Hurricane Katrina Floods New Jersey: The Role of Information in the Market Response to Flood Risk," NBER Working Papers 25984, National Bureau of Economic Research, Inc.
    10. Jacob Vigdor, 2008. "The Economic Aftermath of Hurricane Katrina," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 135-154, Fall.
    11. Markus Baldauf & Lorenzo Garlappi & Constantine Yannelis & José Scheinkman, 2020. "Does Climate Change Affect Real Estate Prices? Only If You Believe In It," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1256-1295.
    12. Kerry A. Odell & Marc D. Weidenmier, 2002. "Real Shock, Monetary Aftershock: The San Francisco Earthquake and the Panic of 1907," NBER Working Papers 9176, National Bureau of Economic Research, Inc.
    13. Philipp Krueger & Zacharias Sautner & Laura T Starks, 2020. "The Importance of Climate Risks for Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1067-1111.
    14. Berg, Gunhild & Schrader, Jan, 2012. "Access to credit, natural disasters, and relationship lending," Journal of Financial Intermediation, Elsevier, vol. 21(4), pages 549-568.
    15. Chavaz, Matthieu, 2016. "Dis-integrating credit markets: diversification, securitization, and lending in a recovery," Bank of England working papers 617, Bank of England.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Matteo Alessi & Ilaria Manti & Luca Santabarbara, 2024. "Natural Disasters, Local banking, and Recovery lending: evidence from an Italian earthquake," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(6), pages 1-2.
    3. Thakor, Anjan & Yu, Edison G., 2024. "Funding liquidity creation by banks," Journal of Financial Stability, Elsevier, vol. 73(C).
    4. Anjan V. Thakor & Edison Yu, 2023. "Funding Liquidity Creation by Banks," Working Papers 23-02, Federal Reserve Bank of Philadelphia.
    5. Breckenfelder, Johannes & Maćkowiak, Bartosz & Marqués-Ibáñez, David & Olovsson, Conny & Popov, Alexander & Porcellacchia, Davide & Schepens, Glenn, 2023. "The climate and the economy," Working Paper Series 2793, European Central Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Breckenfelder, Johannes & Maćkowiak, Bartosz & Marqués-Ibáñez, David & Olovsson, Conny & Popov, Alexander & Porcellacchia, Davide & Schepens, Glenn, 2023. "The climate and the economy," Working Paper Series 2793, European Central Bank.
    2. Kakuho Furukawa & Hibiki Ichiue & Noriyuki Shiraki, 2020. "How Does Climate Change Interact with the Financial System? A Survey," Bank of Japan Working Paper Series 20-E-8, Bank of Japan.
    3. Koetter, Michael & Noth, Felix & Rehbein, Oliver, 2020. "Borrowers under water! Rare disasters, regional banks, and recovery lending," Journal of Financial Intermediation, Elsevier, vol. 43(C).
    4. Allen N. Berger & Filippo Curti & Nika Lazaryan & Atanas Mihov & Raluca A. Roman, 2023. "Climate Risks in the U.S. Banking Sector: Evidence from Operational Losses and Extreme Storms," Working Papers 21-31, Federal Reserve Bank of Philadelphia.
    5. 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.
    6. Noth, Felix & Schüwer, Ulrich, 2017. "Natural disasters and bank stability: Evidence from the U.S. financial system," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168263, Verein für Socialpolitik / German Economic Association.
    7. Noth, Felix & Schüwer, Ulrich, 2018. "Natural disasters and bank stability: Evidence from the U.S. financial system," SAFE Working Paper Series 167, Leibniz Institute for Financial Research SAFE, revised 2018.
    8. Noth, Felix & Rehbein, Oliver, 2017. "Badly hurt? Natural disasters and direct firm effects," IWH Discussion Papers 25/2017, Halle Institute for Economic Research (IWH).
    9. Noth, Felix & Schüwer, Ulrich, 2023. "Natural disasters and bank stability: Evidence from the U.S. financial system," Journal of Environmental Economics and Management, Elsevier, vol. 119(C).
    10. Berger, Allen N. & Molyneux, Phil & Wilson, John O.S., 2020. "Banks and the real economy: An assessment of the research," Journal of Corporate Finance, Elsevier, vol. 62(C).
    11. Duqi, Andi & McGowan, Danny & Onali, Enrico & Torluccio, Giuseppe, 2021. "Natural disasters and economic growth: The role of banking market structure," Journal of Corporate Finance, Elsevier, vol. 71(C).
    12. Aguilar-Gomez, Sandra & Gutierrez, Emilio & Heres, David & Jaume, David & Tobal, Martin, 2024. "Thermal stress and financial distress: Extreme temperatures and firms’ loan defaults in Mexico," Journal of Development Economics, Elsevier, vol. 168(C).
    13. 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.
    14. Shala, Iliriana & Schumacher, Benno, 2022. "The impact of natural disasters on banks' impairment flow: Evidence from Germany," Discussion Papers 36/2022, Deutsche Bundesbank.
    15. Noth, Felix & Rehbein, Oliver, 2019. "Badly hurt? Natural disasters and direct firm effects," Finance Research Letters, Elsevier, vol. 28(C), pages 254-258.
    16. Braun, Alexander & Braun, Julia & Weigert, Florian, 2023. "Extreme weather risk and the cost of equity," CFR Working Papers 23-08, University of Cologne, Centre for Financial Research (CFR).
    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. Vinzenz Peters & Jingtian Wang & Mark Sanders, 2023. "Resilience to extreme weather events and local financial structure of prefecture-level cities in China," Climatic Change, Springer, vol. 176(9), pages 1-21, September.

    More about this item

    Keywords

    hurricanes; wildfires; floods; climate change; weather disasters; FEMA; banks; financial stability; local knowledge;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H84 - Public Economics - - Miscellaneous Issues - - - Disaster Aid

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:93339. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gabriella Bucciarelli (email available below). General contact details of provider: https://edirc.repec.org/data/frbnyus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.