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Borrowers under water! Rare disasters, regional banks, and recovery lending

Michael Koetter, Felix Noth and Oliver Rehbein

Journal of Financial Intermediation, 2020, vol. 43, issue C

Abstract: We show that local banks provide corporate recovery lending to firms affected by adverse regional macro shocks. Banks that reside in counties unaffected by the natural disaster that we specify as macro shock increase lending to firms inside affected counties by 3%. Firms domiciled in flooded counties, in turn, increase corporate borrowing by 16% if they are connected to banks in unaffected counties. We find no indication that recovery lending entails excessive risk-taking or rent-seeking. However, within the group of shock-exposed banks, those without access to geographically more diversified interbank markets exhibit more credit risk and less equity capital.

Keywords: Disaster risk; Credit demand; Natural disaster; Relationship lenders (search for similar items in EconPapers)
JEL-codes: G21 G29 O16 Q54 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:43:y:2020:i:c:s1042957319300130

DOI: 10.1016/j.jfi.2019.01.003

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