Direct and Indirect Impacts of Natural Disasters on Banks: A Spatial Framework

52 Pages Posted: 2 Jun 2022 Last revised: 13 Dec 2022

See all articles by James R. Barth

James R. Barth

Auburn University; Milken Institute

Qinyou Hu

Rice University - Department of Economics

Robin C. Sickles

Rice University - Department of Economics

Yanfei Sun

Toronto Metropolitan University

Fisher Yu

Rice University - Department of Economics

Date Written: November 21, 2022

Abstract

We examine the direct and indirect impacts of natural disasters on deposit rates of U.S. bank branches from 2008 to 2017. To the best of our knowledge, this approach is the first to capture spatial spillover effects of disasters on the deposit rate setting of competing branches for deposits based on their geographic distance from those branches in counties directly exposed to such disasters. We find indirect effects contribute at least two-thirds of the total impact for deposit rate-setting branches. Rate-setting branches in affected counties, on average, raise their deposit rates on 12-month CDs by 1.5 basis points directly due to the disaster shock. However, there is an additional indirect increase of 2.7 - 4.3 basis points for all rate-setting branches, including those in adjacent but unaffected counties, due to the local geographical competition for deposits. We also confirm that the spillover effect occurs among branches across counties via an overlooked social connection network. Moreover, and importantly, online and one-county banks are more likely to rely on the information channel embedded in the social connection network in response to natural disasters.

Keywords: banks, bank branches, deposit rates, natural disasters, spatial analysis

JEL Classification: G21, C31, Q54

Suggested Citation

Barth, James R. and Hu, Qinyou and Sickles, Robin C. and Sun, Yanfei and Yu, Fisher, Direct and Indirect Impacts of Natural Disasters on Banks: A Spatial Framework (November 21, 2022). Available at SSRN: https://ssrn.com/abstract=4118057 or http://dx.doi.org/10.2139/ssrn.4118057

James R. Barth

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States
334-844-2469 (Phone)
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Milken Institute ( email )

1250 Fourth Street
Santa Monica, CA 90401
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Qinyou Hu (Contact Author)

Rice University - Department of Economics ( email )

6100 South Main Street
Houston, TX 77005
United States

Robin C. Sickles

Rice University - Department of Economics ( email )

6100 South Main Street
Houston, TX 77005
United States

Yanfei Sun

Toronto Metropolitan University ( email )

Fisher Yu

Rice University - Department of Economics ( email )

6100 South Main Street
Houston, TX 77005
United States

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