Climate Risks in the U.S. Banking Sector: Evidence from Operational Losses and Extreme Storms
61 Pages Posted: 11 Dec 2022
Date Written: December 5, 2022
Using supervisory data from large U.S. bank holding companies (BHCs), we document that BHCs suffer more operational losses during episodes of extreme storms. Among different operational loss types, losses due to external fraud, BHCs' failure to meet obligations to clients and faulty business practices, damage to physical assets, and business disruption drive this relation. Event study estimations corroborate our baseline findings. We further show that BHCs with past exposure to extreme storms reduce operational losses from future exposure to storms. Overall, our findings provide new evidence regarding U.S. banking organizations' exposure to climate risks with implications for risk management practices and supervisory policy.
Keywords: Operational Losses, Banking, Bank Holding Companies, Natural Disasters, Climate Risk, Hurricanes, Tornadoes, Severe Thunderstorms
JEL Classification: G20, G21, G32, Q54
Suggested Citation: Suggested Citation