The Effect of Natural Disasters on Bank Failures
25 Pages Posted: 8 Oct 2014
Date Written: March 12, 2014
We tests whether natural disasters have an effect on failure probabilities of banks in affected regions. Using data on property damages from hurricanes, earthquakes and other natural disasters in the U.S. from 1976 to 2010, we show that natural disasters significantly increase the failure probabilities of banks. This effect prevails when controlling for bank characteristics that are typically associated with bank failures. Surprisingly, our results suggest that banks are not more likely to fail due to disaster damage in the short-term period after a natural disaster occurs, but in the medium-term period.
Keywords: natural disasters, bank failures
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