Financial fragility and natural disasters: An empirical analysis

Jeroen Klomp

Journal of Financial Stability, 2014, vol. 13, issue C, 180-192

Abstract: Using data for more than 160 countries in the period 1997–2010, we explore the impact of large-scale natural disasters on the distance-to-default of commercial banks. The financial consequences of natural catastrophes may stress and threaten the existence of a bank by adversely affecting their solvency. After extensive testing for the sensitivity of the results, our main findings suggest that natural disasters increase the likelihood of a banks’ default. More precisely, we conclude that geophysical and meteorological disasters reduce the distance-to-default the most due to their widespread damage caused. In addition, the impact of a natural disaster depends on the size and scope of the catastrophe, the rigorousness of financial regulation and supervision, and the level of financial and economic development of a particular country.

Keywords: Banking sector; Financial fragility; Natural disasters (search for similar items in EconPapers)
JEL-codes: G21 Q54 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (107)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:13:y:2014:i:c:p:180-192

DOI: 10.1016/j.jfs.2014.06.001

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