Flood risk and financial stability: Evidence from a stress test for the Netherlands

Francesco Caloia and David-Jan Jansen

Working Papers from DNB

Abstract: If climate change continues unabated, extreme weather events are expected to occur more frequently. Rising flood incidence will especially affect low-lying countries, both through property damage and macro-financial adversity. Using a stress test framework and geocoded data on real-estate exposures for Dutch banks, we study when floods would start impairing financial stability. We find that the banking sector is capitalised sufficiently to withstand floods in unprotected areas, where there is relatively little real estate. However, capital depletions would increase quickly in case more severe floods hit the densely-populated western part of the Netherlands. These findings have possible implications for various policy areas, including macroprudential policy.

Keywords: financial stability; flood risk; real estate; stress test (search for similar items in EconPapers)
JEL-codes: G21 Q54 R30 (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-env, nep-fdg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:730

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