Natural Disasters and the Role of Regional Lenders in Economic Recovery

We find that Chinese regional state-owned City-Commercial Banks (CCBs) landlocked by their remit to operate within a city respond to natural disasters more effectively by aggressively expanding credit, especially to corporate borrowers. The credit expansion is robust to a difference-in-differences specification and is unobservable among non-CCBs in the same city. Moreover, the expansion is more pronounced in CCBs with high state ownership and those that are private. Despite the additional CCB lending, we do not find a drop in asset quality, and using satellite-based city night lights, we find post-disaster cities that experience greater CCB credit expansion enjoy stronger economic recoveries. Overall, our findings highlight the critical role played by regional state-owned lenders in economic recovery from increasingly frequent natural disasters.

Keywords: Natural Disaster, City-Commercial Bank, Recovery

JEL Classification: G21, G28, Q54

Suggested Citation: Suggested Citation

Celil, Hursit S. and Oh, Seungjoon and Selvam, Srinivasan, Natural Disasters and the Role of Regional Lenders in Economic Recovery (February 22, 2022). Journal of Empirical Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3882391 or http://dx.doi.org/10.2139/ssrn.3882391