Climate Risks in the U.S. Banking Sector: Evidence from Operational Losses and Extreme Storms

62 Pages Posted: 20 Dec 2023

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business

Filippo Curti

Federal Reserve Bank of Richmond - Quantitative Supervision & Research

Nika Lazaryan

Federal Reserve Banks - Federal Reserve Bank of Richmond

Atanas Mihov

University of Kansas

Raluca A. Roman

Federal Reserve Bank of Philadelphia

Multiple version iconThere are 2 versions of this paper

Date Written: December, 2023

Abstract

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

Berger, Allen N. and Curti, Filippo and Lazaryan, Nika and Mihov, Atanas and Roman, Raluca A., Climate Risks in the U.S. Banking Sector: Evidence from Operational Losses and Extreme Storms (December, 2023). FRB of Philadelphia Working Paper No. 21-31, Available at SSRN: https://ssrn.com/abstract=4670216 or http://dx.doi.org/10.21799/frbp.wp.2023.31

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene St.
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Filippo Curti

Federal Reserve Bank of Richmond - Quantitative Supervision & Research ( email )

530 E Trade St
Charlotte, NC 28202
United States

Nika Lazaryan

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Atanas Mihov

University of Kansas ( email )

1415
Lawrence, KS 66045
United States

Raluca A. Roman

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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