Natural Catastrophes and Bank Lending: The Case of Flood Risk in Italy

28 Pages Posted: 31 Jul 2019

Date Written: October 1, 2018

Abstract

We investigate the relationship between bank lending and catastrophe risk by analyzing the exposure of banks to Italian firms located in areas at risk of flooding. By matching a new map of flood risk areas with proprietary data on bank loans at municipal level we find that, on controlling for sectoral- and province-level fixed effects, lending to non-financial firms is negatively correlated with their flood risk exposure. A province-level analysis, which also allows us to control for bank- and firm-specific factors, confirms this finding when the borrowers are small and medium-sized enterprises. This investigation gives an initial insight into the relationship between the risk of natural catastrophes - exacerbated by climate change - and lending decisions.

Keywords: catastrophe risk, climate change, rare disasters, bank lending, flooding, Italy

JEL Classification: G21, P48, Q54

Suggested Citation

Faiella, Ivan and Natoli, Filippo, Natural Catastrophes and Bank Lending: The Case of Flood Risk in Italy (October 1, 2018). Bank of Italy Occasional Paper No. 457. Available at SSRN: https://ssrn.com/abstract=3429210 or http://dx.doi.org/10.2139/ssrn.3429210

Ivan Faiella (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Filippo Natoli

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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