Natural Disaster and Bank Stability: Evidence from the U.S. Financial System

42 Pages Posted: 21 Feb 2017 Last revised: 2 May 2018

Felix Noth

University of Magdeburg; Halle Institute for Economic Research

Ulrich Schüwer

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

Date Written: April 25, 2018

Abstract

We show that property damages from weather-related natural disasters significantly weaken the stability of banks with business activities in affected regions, as reflected in lower z-scores, higher probabilities of default, higher non-performing assets ratios, higher foreclosure ratios, lower returns on assets, and lower bank equity ratios. The effects are economically relevant and suggest that insurance payments and public aid programs do not sufficiently protect bank borrowers against financial difficulties. We also find that the adverse effects on bank stability dissolve after some years if no further disasters occur during that time.

Keywords: natural disasters, bank stability, non-performing assets, bank performance

JEL Classification: G21, Q54

Suggested Citation

Noth, Felix and Schüwer, Ulrich, Natural Disaster and Bank Stability: Evidence from the U.S. Financial System (April 25, 2018). SAFE Working Paper No. 167. Available at SSRN: https://ssrn.com/abstract=2921000 or http://dx.doi.org/10.2139/ssrn.2921000

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

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

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