How do local banks respond to natural disasters?

Quynh Do

Research output: Contribution to journalArticlepeer-review

4 Citations (SciVal)

Abstract

The increasing frequency and intensity of catastrophic natural disasters have the potential to stress and imperil banks to the point of compromised viability or even bankruptcy. Using data of approximately 907 domestic/local banks and Spatial Hazard Events and Losses Database for the United States during the period 2010–2019, we explore how natural disasters impact bank stability. Our main findings support the aforementioned hypothesis that natural disasters decrease bank stability because total deposit and equity (capital) become more volatile and the bank is prone to increased lending margins, as well as a provision of loan loss. Thus, banks lose their competitiveness, ROA deteriorates, and Z-score becomes lower. Strong corporate governance and healthy financial strategy, nevertheless, assist bank recovery in the aftermath of these weather extreme events. Last but not least, we find a non-linear relationship between natural disasters and bank stability and posit the role of indemnity paid out from the Federal insurance programme (after natural hazards) in the high-damage group.

Original languageEnglish
Pages (from-to)754-779
JournalThe European Journal of Finance
Volume29
Issue number7
Early online date22 May 2022
DOIs
Publication statusPublished - 31 Dec 2023

Keywords

  • CO emission
  • Natural disaster
  • banking sector
  • corporate governance
  • financial stability

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)

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