Natural Disaster and Bank Stability: Evidence from the U.S. Financial System
42 Pages Posted: 21 Feb 2017 Last revised: 2 May 2018
Date Written: April 25, 2018
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: Suggested Citation