How do local banks respond to natural disasters?

Do, Quynh Anh; Phan, Van; Nguyen, Duc Tam

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.

• Journal Article Type: Article
• Acceptance Date: Feb 21, 2022
• Online Publication Date: May 22, 2022
• Publication Date: Jun 30, 2023
• Deposit Date: May 24, 2022
• Publicly Available Date: Jul 7, 2023
• Journal: The European Journal of Finance
• Print ISSN: 1351-847X
• Electronic ISSN: 1466-4364
• Publisher: Taylor & Francis (Routledge)
• Peer Reviewed: Peer Reviewed
• Volume: 29
• Issue: 7
• Pages: 754-779
• DOI: https://doi.org/10.1080/1351847X.2022.2055969
• Keywords: Natural disasters, Banks, Natural disaster; financial stability; CO 2 emission; banking sector; corporate governance
• Public URL: https://uwe-repository.worktribe.com/output/9563222