How Do Banks React to Catastrophic Events? Evidence from Hurricane Katrina
SAFE Working Paper No. 94
50 Pages
Posted: 28 Mar 2015
Goethe University Frankfurt - Chair of Econometrics
Otto-von-Guericke University; Halle Institute for Economic Research
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:
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
