The Impact of Natural Disasters on the Corporate Loan Market

Ivan T. Ivanov, Marco Macchiavelli and Joao Santos

No 20201118, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Natural disasters are usually associated with an increase in the demand for credit by both households and companies in the affected regions. However, if capacity constraints preclude banks from meeting the local increase in demand, the banks may reduce lending elsewhere, thus propagating the shock to unaffected areas. In this post, we analyze the corporate loan market and find that banks, particularly those with lower capital, reduce credit provisioning to distant regions unaffected by natural disasters. We also find that shadow banks only partially offset the reduction in bank credit, so borrowers in regions unaffected by natural disasters experience a decline in credit supply.

Keywords: natural disasters; bank lending; shadow banks (search for similar items in EconPapers)
JEL-codes: G21 G23 Q54 (search for similar items in EconPapers)
Date: 2020-11-18
New Economics Papers: this item is included in nep-ban and nep-env
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