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How do local banks respond to natural disasters?

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

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Authors

Quynh Anh Do

Duc Tam Nguyen



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.

Citation

Do, Q. A., Phan, V., & Nguyen, D. T. (2023). How do local banks respond to natural disasters?. European Journal of Finance, 29(7), 754-779. https://doi.org/10.1080/1351847X.2022.2055969

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 Mar 29, 2024
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

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