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

SAFE Working Paper No. 94

50 Pages Posted: 28 Mar 2015  

Claudia Lambert

Goethe University Frankfurt - Chair of Econometrics

Felix Noth

Otto-von-Guericke University; Halle Institute for Economic Research

Ulrich Schüwer

University of Bonn; Research Center SAFE at Goethe University Frankfurt

Date Written: March 2015

Abstract

This paper explores how banks adjust their risk-based capital ratios and asset allocations following an exogenous shock to their asset quality caused by Hurricane Katrina in 2005. We find that independent banks based in the disaster areas increase their risk-based capital ratios after the hurricane, while those part of a bank holding company do not. The effect on independent banks mainly comes from the subgroup of high-capitalized banks. These banks increase their holdings in government securities and reduce loans to non-financial firms. Hence, banks that become more stable achieve this at the cost of reduced lending.

Keywords: catastrophic events, bank regulation, capital ratios, natural experiment

JEL Classification: G21, G28

Suggested Citation

Lambert, Claudia and Noth, Felix and Schüwer, Ulrich, How Do Banks React to Catastrophic Events? Evidence from Hurricane Katrina (March 2015). SAFE Working Paper No. 94. Available at SSRN: https://ssrn.com/abstract=2585521 or http://dx.doi.org/10.2139/ssrn.2585521

Claudia Lambert

Goethe University Frankfurt - Chair of Econometrics ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Felix Noth

Otto-von-Guericke University ( 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

Ulrich Schüwer (Contact Author)

University of Bonn ( email )

Adenauerallee 24-42
Bonn, 53113
Germany

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

Research Center SAFE at Goethe University Frankfurt ( email )

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

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