Bank Lending Networks and the Propagation of Natural Disasters

44 Pages Posted: 14 Mar 2020 Last revised: 20 Nov 2020

See all articles by Ivan Ivanov

Ivan Ivanov

Board of Governors of the Federal Reserve System

Marco Macchiavelli

Board of Governors of the Federal Reserve System

João A. C. Santos

Federal Reserve Bank of New York

Date Written: May 6, 2020

Abstract

We study how syndicated lending networks propagate natural disasters. Natural disasters lead to an increase in corporate credit demand in affected regions. Banks meet the increase in credit demand in part by reducing credit to distant regions, unaffected by disasters. Capital constraints play a key role in this effect as lower-capital banks propagate disasters to unaffected regions to a greater extent. While shadow banks offset the reduction in bank credit supply on term loan syndicates, they do not offset the loss in credit line financing. As a result, corporate credit in unaffected regions falls by approximately 3%.

Keywords: Natural disasters, Syndicated loans, Bank networks, Shadow banks

JEL Classification: G21, G23, Q54

Suggested Citation

Ivanov, Ivan and Macchiavelli, Marco and Santos, João A. C., Bank Lending Networks and the Propagation of Natural Disasters (May 6, 2020). Available at SSRN: https://ssrn.com/abstract=3541335 or http://dx.doi.org/10.2139/ssrn.3541335

Ivan Ivanov (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Marco Macchiavelli

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

João A. C. Santos

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)

HOME PAGE: HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML

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