High water, no marks? Biased lending after extreme weather

Nicola Garbarino and Benjamin Guin

No 856, Bank of England working papers from Bank of England

Abstract: Policymakers have put forward proposals to ensure that banks do not underestimate long-term risks from climate change. To examine how lenders account for extreme weather, we compare matched repeat mortgage and property transactions around a severe flood event in England in 2013–14. First, lender valuations do not ‘mark-to-market’ against local price declines. As a result valuations are biased upwards. Second, lenders do not offset this valuation bias by adjusting interest rates or loan amounts. Third, borrowers with low credit risk self-select into high flood risk areas. Overall, these results suggest that lenders do not track closely the impact of extreme weather ex-post, and that public flood insurance programs may subsidise high income households.

Keywords: D12; G21; Q51; Q54 (search for similar items in EconPapers)
JEL-codes: D12 G21 Q51 Q54 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2020-03-20
New Economics Papers: this item is included in nep-agr, nep-env, nep-ias and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: High water, no marks? Biased lending after extreme weather (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0856

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