How Do Banks React to Catastrophic Events? Evidence from Hurricane Katrina

SAFE Working Paper No. 94

69 Pages Posted: 28 Mar 2015 Last revised: 14 Nov 2017

Ulrich Schüwer

University of Bonn - Institute for Financial Economics and Statistics; Goethe University Frankfurt - Department of Finance

Claudia Lambert

European Central Bank (ECB)

Felix Noth

University of Magdeburg; Halle Institute for Economic Research

Date Written: September 18, 2017

Abstract

This paper explores how banks react to an exogenous shock caused by Hurricane Katrina in 2005, and how the structure of the banking system affects economic development following the shock. Independent banks based in the disaster areas increase their risk-based capital ratios after the hurricane, while those that are part of a bank holding company on average do not. The effect on independent banks mainly comes from the subgroup of high-capitalized banks. These independent and high-capitalized banks increase their holdings in government securities and reduce their total loan exposures to non-financial firms, while they also increase new lending to these firms. Regarding local economic developments, affected counties with a relatively large share of independent and high-capitalized banks exhibit higher economic growth than the other affected counties after the catastrophic event.

Keywords: catastrophic events, bank regulation, capital ratios, banking structure, economic development

JEL Classification: G21, G28

Suggested Citation

Schüwer, Ulrich and Lambert, Claudia and Noth, Felix, How Do Banks React to Catastrophic Events? Evidence from Hurricane Katrina (September 18, 2017). SAFE Working Paper No. 94. Available at SSRN: https://ssrn.com/abstract=2585521 or http://dx.doi.org/10.2139/ssrn.2585521

Ulrich Schüwer (Contact Author)

University of Bonn - Institute for Financial Economics and Statistics ( email )

Adenauerallee 24-42
Bonn, 53113
Germany

HOME PAGE: http://www.finance.uni-bonn.de/

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt, 60323
Germany

HOME PAGE: http://safe-frankfurt.de/home.html

Claudia Lambert

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Felix Noth

University of Magdeburg ( email )

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany

Halle Institute for Economic Research

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/asp/person.asp?fnh&Lang=e&Abteilung=fin

Register to save articles to
your library

Register

Paper statistics

Downloads
212
rank
130,936
Abstract Views
982
PlumX